Institutes  of 


Economics 


Andrews 


UNIVERSITY  OF  CALIFORNIA 
AT   LOS  ANGELES 


THE  GIFT  OF 

MAY  TREAT  MORRISON 

IN  MEMORY  OF 

ALEXANDER   F  MORRISON 

INSTITUTES  OF  ECONOMICS 


.-/  SUCCINCT  TEXT-JWOK  OF  POLITICAL  ECONOMY 

FOR   THE  USE  OF  CLASSES  IN  COLLEGES 

HIGH  SCHOOLS  AND  ACADEMIES 


BY 


ELISHA  BENJAMIN  ANDREWS  D.D.  LL.D. 

President  of  Brown  Universitv 
Late  Professor  of  Political  Economy  and  Finance  in  Cornell  University 


^-oJOio^--.  '    •     "      '   "      ' 


BOSTON 

SILVER,    BURDETT   &   COMPANY 
1894 


Copyright,  1888 
By  E.   benjamin   ANDREWS 


TvpoGRArHY  nv  J.  S.  Gushing  &  Co.,  Boston 
Presswork  by  Berwick  &  Smith,  Boston 


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Hof-Rath  Dr.  Joh.  A.  R.  i/on  HELFERICH 

Professor  of  Economics  and  Finance  in  the 
University  of  Munich 

By  his  former  pupil 
THE    AUTHOR 


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Xenophox,   Oikonomikos,  I,   i,  2. 


PREFACE 


Two  main  motives  have  prompted  the  composition  of  this  book, 
one  concerning  method,  tlie  other,  doctrine.  The  most  excellent 
manuals  of  Political  Economy  now  in  use  seem  to  the  author  to 
involve  two  serious  faults  of  method.  One  is  that  they  nearly 
everywhere  say  too  much,  totally  ignoring  the  instructor,  and  on 
most  points  leaving  the  pupil  himself  little  thinking  to  do  even 
when  they  stop  short  of  positively  confusing  his  mind  in  its  efforts 
to  construe  the  thought  in  its  own  way.  The  other  is  that  they  do 
not  mark  for  the  eye,  in  differences  of  type,  any  distinction  between 
substantive  and  subsidiary  material,  their  pages  exhibiting  prin- 
ciple and  illustration,  statement  and  amplification,  clothed  in  equal 
dignity  of  form.  It  is  believed  both  on  psychological  grounds 
and  from  much  experience,  that  the  best  printed  presentation  of  a 
subject  for  class-room  purposes  is  the  briefest  which  clearness  will 
allow,  leaving  indispensable  amplifications  and  illustrations  to  notes, 
and  all  fuller  exposition  to  the  teacher's  wit  or  the  student's  search. 
This  is  the  aim  of  the  following  pages.  That  the  pupil,  so  soon  as 
master  of  the  essential  idea,  may  be  able  to  at  once  enlarge  and 
tighten  his  grasp  upon  it  through  reading,  most  of  the  paragraphs 
are  introduced  by  references  to  the  best  accessible  authorities,  more 
recondite  works  being  at  the  same  time  named  for  the  behoof  of 
teachers.  On  collateral  subjects  of  special  importance  the  ablest 
convenient  discussions  are  listed  in  notes.  The  analysis  and  ar- 
rangement of  topics  are  in  many  particulars  new,  and  it  is  hoped 
that  some  of  the  changes  introduced  will  prove  welcome.  As  the 
result  of  careful  reflection,  a  prominence  which  may  at  first  seem 
grotesque  has  been  given  to  the  paragraph-captions.  Students  will 
find  this  not  merely  a  mnemonic  convenience  for  the  purposes  of 
review  and  examination,  but  a  most  efficient  objective  help  in  grasp- 


VI  PREFACE 

ing  the  science.  Touching  the  doctrine  of  this  new  class-book 
there  is  less  to  say.  As  Economics  is  now  in  transition  many  depre- 
cate all  effort  at  present  to  summarize  it  afresh.  This  logic,  strictly 
taken,  presupposes  the  advent,  sooner  or  later,  of  a  fixedness  in 
the  science  which  we  fervently  hope  will  never  arise,  since  it  could 
not  but  imply  stagnation  in  economic  thought.  Meantime  our  best 
te.xts,  with  all  that  is  tnie,  profound,  and  well  said  in  them,  blend 
not  a  few  propositions  that  what  may  be  called  the  general  judg- 
ment of  progressive  economists  pronounces  inadequate,  misleading, 
or  erroneous.  Such  are  especially  numerous  in  regard  to  the  nature 
of  Wealth,  the  scope  of  Economics,  and  in  the  weighty  rubrics  of 
Value,  Money,  Interest,  Wages,  and  Profits.  Nearly  all  our  trea- 
tises, besides,  betray  from  beginning  to  end  a  deceptive  air,  a  wry 
ensemble,  springing  from  writers'  too  sharp  sundering  of  Economics 
from  general  Sociology.  Whether  the  volume  now  oftered  to  the 
public  contains  in  these  respects  aught  of  true  amendment,  those 
who  read  and  use  it  must  judge.  They  will  at  any  rate  find  in  it, 
not  always  adopted  but  at  least  sympathetically  mentioned  so  far  as 
these  are  sufficiently  non-technical  to  be  named  in  a  work  of  this 
character,  the  latest  views  which  can  with  any  propriety  pretend 
to  be  settled.  The  book  has  been  written  during  the  odd  moments 
of  a  very  busy  year,  and  it  will  be  a  wonder  if  the  critic's  keen 
glance  shall  not  unearth  in  it  some  inconsistencies  and  errors  of 
detail.  The  author  will  be  happy  to  be  notified  of  any  such.  He 
is  indebted  to  several  gentlemen  for  their  kind  pains  in  looking  over 
the  proof  sheets  as  they  have  appeared.  In  this,  Professor  J.  W. 
Moncrief,  Ph.D.,  of  Franklin  College,  has  rendered  a  peculiarly 
grateful  service. 

E.  BENJ.   A.\ DREWS. 

July  3,  1889. 


TABLE   OF   CONTENTS 


INTRODUCTION 

I  Economics  Dulincd  (i)*  —  §  2  General  and  Private  Wealth  (4)  — 
§  3  Economic  Evolution  (5) — §  4  Economics  a  Science  (7) — §  5 
Modern  (8)  —  §  6    Its  Origin  (9)  —  §  7   The  Mercantile  System  (10) 

—  §8   Progress  (12I — §9  Physiocracy  (14) — §  10  Adam  Smith  (15) 

—  §  II  The  Smithian  School  (17) — §  12  The  Historical  or  Apos- 
teriori  Tendency  (19) — §  13  Professiorial  Socialism  (20)  —  §  14  The 
Socialists  Proper  (23)— §  15  Our  View  (25)— §  16  Value  of  the 
Study  (28)  — §17   The  Division  of  Economics  (30) 


PART    I 

PRODUCTION 

Except  as  Involving  Exchange 

CHAPTER    I 

THE    NATURE    OF    PRODUCTION 

§  18  Various  Views  of  Productivity  (31)  — §  19  Wealth-Increment 
which  is  not  Production  (33) — §  20  Production  (34")  —  §  21  Special 
Remarks  on  Prtuiuction  (36)  —  §  22  The  Conditions  of  Production  (38) 

CHAPTER    II 

THE    ABSOLUTE    CONDITIONS    OF    PRODUCTION 

Nature  —  Labor 

§  23  The  Materials  of  Nature  (40)  —  §  24  The  Forces  of  Nature  (42) 
—  §25  Labor:  its  Necessity  (43) — $  26  Its  Forms  (44)  —  $  27  Its 
Relation  to  Nature  (45) 

*  Figures  in  brackets  refer  to  pages 


Viii  TABLE    OF    CONTENTS 

CHAPTP:R    III 

THE    RELATIVELY    ABSOLUTE    CONDITIONS    OF    PRODUCTION 

Capital —  Social  Organization 

%  28  Capital  Defined  (47)  —  §  29  Kinds  of  Capital  (48)  —  §  30  The 
Place  of  Capital  in  Production  (50)  — §  31  Society  (52)  —  §  32  The 
State  (53) 

CHAPTER    IV 
THE    RELATIVE    CONDITIONS    OF    PRODUCTION 

§  33  Cieneral  View  (55) — §  34  Diminishing  Return  and  Increasing 
Return  (56) — §  35  The  Labor-Force:  Extent  (57) — §  36  The 
Labor-Force:  Quality  (59)  —  §  37    Socialism  and  Production  (62) 

CHAPTER   V 

THE    RELATIVE    CONDITIONS,    CONTINUED 

§  38  Extraneous  Aids  to  Labor  (64)  —  §  39  Geography  and  Topography 
(64")  —  §40  Material  Capital  in  General  (66)  — §41  Machinery  (67) 
—  §42  Unembodied  Invention  (68)  —  §  43  The  Organization  of  Indus- 
try (69)  —§44  The  Same  in  a  Special  Aspect  (71)  — §45  Evils  and 
Limitations  (72)  —  §46  The  Form  of  Undertaking  (73) 

CHAPTER  VI 

COST    AND    CONSUMPTION    IN    PRODUCTION 

§47  Metaphysical  Cost  (76)— §48  Mercantile  Cost  (78)— §49  Con- 
sumption (79)  — §50   Waste  and  Thrift  (80) 


PART   II 

EXCHANGE 
Except  as  Involving  the  Science  of  Money 

CHAPTER    I 

THE    NATURE    OF    EXCHANGE 

§  51  In  Rude  Societies  (83;  — §52  Philosophy  (85)  —  §  53  Intrinsic 
Advantages  (86)  — §  54  Riadi  (,f  Innucnce  (87)  —  §  55  The  Per- 
fection of  Exchange  (90) 


TABLE    OF    CONTENTS  IX 

CHAPTER    II 

INTERNATIONAL    EXCHANGE 

§56  Initial  View  (92) — §57  Common  Ground  (94) — §58  The  Theory 
of  Nutrient  Restriction  (96)  —  §  59  Continuation  (98)  —  §  60  Impor- 
tant Specific  Points  (99) 

CHAITER    III 
VALUE:    GENERAL 

§  61  Value  and  Value  (102)  —  §  62  Value  in  Use  (103)  —  §  63  Value 
in  Exchange  (105)  — §64  Price  (107)  — §  65  Normal  Value  in  Ex- 
change (107) 

CHAPTER    IV 
VALUE:    PECULIAR    PROBLEMS 

§  66  Competition  and  Value  (no) — §  67  Monopoly  Value  (112)  — 
§  68  Values  lietween  Non-Competing  Groups  (113)  —  §  69  Complex 
Cases  of  Value  (114)  —  §  70  A  Measure  of  Exchange-Value  (115)  — 
§  71    The  Value  of  Futures  (117) 

PART    III 
MONEY    AND    CREDIT 

CHAPTER    I 

THE    NATURAL    HISTORY    OF    MONEY 

§72  Barter  (118) —§  73  Primitive  Money  (i  19) — §74  Money  Proper 
(120)  — §  75  The  Money  Metals  (121)  — §  76  Mode  of  their  Dis- 
tribution (124)  —  §  77    Bimetallism  (125) 

CHAPTER    II 

BANKS    AND    PAPER    MONEY 

§  78  Banks  of  Deposit  (128)— §  79  Developed  Banking  (129)  — §  80 
Government  Paper  (130)  —  §  81    Historical  (131) 

CHAPTER    HI 
THE    THEORY    OF    MONEY 
§  82   The  First  Function  of  Money  (134)  — §  S3   The  Second  Function 
(135)  — §  84    Other  Offices  of   Money  (136)— §  85    The  Value  of 
Money  (137) — §86   Paper  Money  (139)  —  §87    Ideal  Money  (14O 


X  TABLE    OF    CONTENTS 

CHAPTER    IV 

CREDIT 

§  88  The  Nature  of  Credit  (143)  —  §  89  Credit  and  Crises  (144)  —  §  90 
F'urther  Abuses  of  Credit  (145) — §  91  Free  Banking  (146) — §  92 
The  John  I  jw  Theory  (147)  —  §  93    Fiat  Money  (148) 

CHAPTER    V 

THE    CLEARING    SYSTEM 

§  94  Settlements  by  Check  (151) — §  95  International  Payments  (153) 
—  §96   Special  Modifiers  of  the  Rate  of  Exchange  (156) 


PART    IV 

DISTRIBUTION 

CHAPTER    I 

THE   NATURE    OF    DISTRIBUTION 

§97  General  Statement  (158) — §  98  Categories  and  Shares  (159)  — 
§  99  Blending  (161)  —  §  100  The  Law  of  Equal  Returns  to  Last 
Increments  (162)  —  §  lOi  The  Other  General  Laws  of  Distribution 
(162)  —  §  102   The  Fifth  Category  ('164) 

CHAPTER    II 

RENT 

§  103  Rent  in  General  (165)  —  §  104  Ground  Rent  (166)  —  §  105  Rent 
and  Price  (167)  —  §  106  Peculiar  and  Nominal  Rents  (168)  —  §  107 
Controversy  (169) 

CHAPTER    III 

INTEREST 

§  108  The  Nature  of  Interest  (171) — §  109  I>oan  Interest  (172)  — 
§  no  The  Rate  on  I^ans  (173)  —  §  in  Inflation  and  Interest  (175) 
—  §  n2    Usur.'  I^ws  (176) 


TABLE    OF    CONTENTS  XI 

CHAPTER    IV 

WAGES 

5  113  Definition  (178)  — §  114  Cause  and  Source  (179)  —  §  115  Devel- 
oped Wages  (180)  — §  116  The  General  Rate  of  Gross  Wages  (181) 
—  §117  The  Residual  Claimant  Theory  (182)— §  118  The  Trutli 
(183)  — §119   Concluding  Points  (184) 

CHAPTER   V 

PROFITS 

§  120  Terminology  (186) — §  I2i  Undertakers'  Profits  (187)  — §  122 
I'ndertaker-Talents  (188)  —  §  123    Profits,  Prices,  Wages  (189) 


PART  V 

CONSUMPTION 

CHAPTER   I 

NEED 

§124  To  Resume  (190) — §  125  Elasticity  of  Need  (191)  —  §  126 
Fashion  and  Progress  (192)  —  §  127    Legitimacy  of  Need  (193) 

CHAPTER   n 
ECONOMY   IN   SUPPLY 

§  128  Generic  Principles  (195)  —  §  129  Specific  Principles  ('95)  — 
§  130  Prevention  of  Loss  (196) — §  131  Luxury  and  Idle  Wealth 
(197) 

PART   VI 

PRACTICAL  TOPICS   INVOLVING   ECONOMIC  THEORY 

CHAPTER  I 

COIN   CURRENCY   IN   THE   UNITED   STATES 

§  132  Colonial  Times  (200)  — §  133  Earliest  National  Coinage  (201)  — 
§  134  The  Dollar  of  the  Fathers  (203)  — §  135  Remonetization  (204) 
—  §136  The  Future  (206) 


XII  TABLE    OF    CONTENTS 

CIIAITER    II 

PAPER    CURRENCY    IN    THE    UNITED   STATES 

§  137  Early  (208)  —  §  138  Thence  to  the  Civil  War  (208)  —  §  139  Gov- 
ernment Taper  (209)  —  §  140  Government  Banking  (210)  —  §  141 
The  National  Bank  System  (212) 

CHAPTER   III 

OUR   PAPER   CURRENCY   IN   FUTURE 

§142  Present  System  (213) — §143  Difficulties  (214)  —  §144  Proposed 
Change  of  Basis  (215)  —  §  145    Probable  Outcome  (216) 

CHAPTER   IV 

TAXATION 

§  146  General  Principles  (218)  —  §  147  Direct  and  Indirect  Taxes  (219) 
—  §  148  Norms  of  Direct  Taxation  (220)  —  §  149  Taxation  of  Income 
(221)  —  §150  Emergency  Taxation  (222) 

CHAPTER   V 

POVERTY 

§151  The  First  Class  of  Remedies  (223)— §  152  The  Second  Class 
(224)  —  §  153    Ultimate  Help  (225) 


INSTITUTES    OF    ECONOMICS 


-s-oXXoo- 


INTRODUCTION 


§  I     Economics  Defined, 

Cossa,  Guide,  ch.  i.  Aft'//,  Essays,  1829,  on  Method  in  Pol.  Ec.  Sidgvjick,  on  do., 
Formighlly,  1879.  Roscher,  Grundlagen,  Einl.,  ch.  i.  Cohn,  Crundleg/ing, 
Einl.,  chaps,  i,  ii,  iv.     Gamier,  Trai'U  ci'ecoii.  po!.,6iz-'$. 

Ecoiioiuics^  is  that  branch  of  learning  conversant 
about  general  wealth,  wealth  being  the  collective 
name  for  all  those  categories ^  of  things,  powers,^  rela- 
tions, and  influences,  which  both  result  from  conscious 
human  effort  and  directly*  contribute  to  human  wel- 
fare in  its  temporal  aspect.  Single  pieces  or  elements 
of  wealth  may  be  called  *  goods '°  or  'values.'^  No- 
tice in  this  definition  (i)  that  not  all  wealth  is  of  a 
material^  nature,  and  (ii)  that  the  mark  'exchange,' 
though  helpful  in  forming  the  conception  of  Econom- 
ics, is  accidental  rather  than  fundamental "  thereto, 
since  a  study  substantially  the  same  might  e.xist  if 
men  did  not  exchange.  Economics,  in  discussing 
wealth,  has  of  course  also  to  canvass  the  condi- 
tions^ of  wealth. 


2  INTRODUCTION 

>  Originally  aiul  liy  etymology,  "  house-management,"  yet  not  indoot 
merely  or  mainly.  oIkos  meant  "estate,"  "property."  Macleod,  Ele- 
ments, vol.  i,  132.  liacon  still  useu  cconomia  in  its  classical  sense.  The 
title  "  Political  Economy  "  [^^conoinic  politique\  first  by  Montchretien  dc 
Watteville^' in-.  1615...  ;It  is-still  in  excellent  use,  but  "Economics"  is 
clearer  as  well  as  "briefer.  RoSOher,  5  16,  folhnving  Uhde,  who  intro- 
duced the  word  in  1S49,  prefers  Ockonomik  to  name  economic  science, 
using  Oekonomie  to  mean  economic  life.  Few  if  any  have  followed  this 
distinction,  and  Cohn,  p.  5,  explicitly  repudiates  it,  sticking  to  Oekonomie 
as  appellation  for  the  science.     Cf.  §  3,  below. 

2  Isolated  articles  may  be  wealth,  though  costing  no  labor,  as  an  aerolite 
of  gold  falling  at  your  door,  or  a  pasture-weed  discovered  to  be  a  specific. 
But  the  classes  of  goods  in  which  these  examples  belong  are  gotten  only 
by  labor. 

^  So  far  as  they  fall  under  the  definition,  i.e.,  spring  from  man's  effort 
and  make  for  his  welfare,  powers,  intellectual  or  physical,  7-elalions,  as  the 
good  name  or  the  custom  of  a  business  house,  and  injlueuccs,  such  as  a  great 
advocate's  reputation  gives,  are  no  less  truly  wealth  than  houses,  garments, 
or  bread.  If  the  definition  of  wealth  as  always  material  is  simpler,  which  is 
certainly  the  case  in  expounding  Distribution,  it  is  less  deep  and  truthful. 
Why,  e.g.,  term  medicine  wealth,  yet  deny  the  name  to  the  skill  able  to 
cure  without  medicine?  In  crucial  analysis,  material  wealth  itself  becomes 
wealth  only  in  and  through  its  immaterial  relationships.  Wheat  is  not 
wealth  merely  because  so  and  so  constituted  physically,  but  because  it  is  here 
instead  of  beyond  reach,  adapted  to  our  constitution,  and  not  repugnant  to 
our  taste.  Now  these  relations  are  not  material  entities  at  all.  Millions 
of  goods  that  have  length,  breadth,  and  thickness,  would  be  turned  to 
refuse  by  trifling  supposable  changes  in  the  psychical  side  of  our  sensi- 
bility. This  is  a  most  important  consideration;  though  it  is  of  course  quite 
possible  to  frame  a  system  of  workable  economic  definitions  on  the  material 
basis.  So  doing,  we  should  style  these  powers  etc.  [immaterial  wealth], 
(ondilions  of  wealth  [note  8].     Bohm-Bawerk,  Kechte  und  Verhaltnisse. 

*  There  are  high  elements  of  character,  perhaps  also  physical  products, 
like  unsalable  keepsakes  and  family  heirlooms,  which  are  the  creatures 
of  effort  and  have  a  certain  bearing  upon  our  well-being,  yet  in  so  remote 
a  way  that  it  is  unnatural  to  reckon  them  as  wealth. 

6  Most  German  writers  approach  the  definition  of  Economics  from  the 
notions  of  "  needs"  and  "  need-salisficrs"  or  "goods."  Cutting  off  non- 
temporal  goods  on  the  one  hand  and  gratuitous  ones  on  the  other,  they 
fence  out  the  same  economic  field  which  our  definition  covers.     Thus,— 


INTK(Jl)UCTION 


CO 


N 


non-temporal  I  S      temporal 

N  EED-SA  TIS  FIcaERS    or    GOODS 


gratuitous 


••  In  the  sense  of  "  labor-requiring  utilities,"  hut  not  in  any  meaning 
which  would  involve  the  idea  of  exchange.  Cf.  note  7.  Kor  the  force 
here  assigned  to  "value,"  see  the  Chapter  on  this  topic  in  Part  II.  Cf. 
Roscher,  §  5  and  notes. 

■  Contrary  to  the  "  catallactics-theory "  of  Economics,  held  by  Con- 
(lillac,  Bastiat  [Harmonies,  ch.  iv],  Whately,  Macleod,  and  Perry  [Ele- 
ments, ch.  iii],  which  builds  the  study  entirely  about  the  conception  of 
exchange  as  centre,  reducing  it  to  an  investigation  of  exchange-value. 
This  procedure  at  first  attracts  by  the  simplicity  it  seems  to  impart,  but  is 
gravely  unscientiiic.  Exchange  is  not  the  substance  of  man's  economic 
life,  but  an  incident,  though  an  important  one.  We  can  easily  conceive 
a  very  complete  set  of  economic  phenomena,  calling  for  investigation  and 
offering  full  basis  for  a  science  of  Economics,  exchange  being  totally  absent. 
Suppose  a  number  of  Robinson  Crusoes  [cf.  Roscher,  p.  5],  some  well  off, 
some  ill  off.  There  would  h'i.  reaions  for  the  difference,  inviting  study.  Pio- 
neers in  new  lands  exchange  little,  yet  vary  greatly  in  weal.  So  the  Indians 
before  the  whites  came,  and  so,  still  better,  the  ancient  Peruvians.  This  is 
the  chief  objection  to  the  theory  named,  but  far  from  the  only  one.  Mill, 
Principles,  bk.  iii,  ch.  i,  §  i.     Cf.  post,  §  3,  n.  9. 

*  "  Object-phenomena  of  Economics,"  that  is,  is  a  broader  conception 
than  "  wealth,"  including  things,  circumstances,  etc.,  helpful  to  wealth,  and 
things,  circumstances,  etc.,  unfavorable  to  the  same.  Originnl  fertility  of 
the  soil,  with  mines,  water-powers,  and  the  other  "  natural "  wealth  of  any 
country,  would  illustrate  what  is  meant  by  conditions  of  wealth.  So 
would  the  native  endowments  of  the  people  which  aid  thrift  and  accu- 
mulation, and  also  any  acfpiired  powers  having  the  same  tendency,  if 
built  up  without  conscious  aim.  The  state  is  a  prime  condition  of 
wealth.  .\t  this  point  again,  however,  imperfect  definition  need  not 
prevent  clear  insight. 


IXTRODUCTIOX 


>?    2 


General  .\xn  Private  We.xlth 


Stcrck,  Zur  K-itik  d.  Begr.  von  Naticnalreichthum  [1827].  Marshall,  Economics 
of  Industry,  §  7.  Hau-ley,  Quar.  Jour.  Econ.,  vol.  ii.  365  sqq.  hiatna-Siernegg, 
V'otn  Sational-ReiLhthum,  Deutsche  Ji tindsch a u,  June,  iSS;^.  Neuniann-Spal- 
lart,  ll'eHwir/scha/t,  jahrg.  iSSi-4,  pp.  S  sqq.     Schmoller,   Forschungen,W\. 

General,  national,  or  co.sniic  wealth  is  not  merely 
the  summed  possessions^  of  individuals  and  mercantile 
corporations.  Immaterial  wealth  and  public  property 
must  be  reckoned  in,  and  either  titles  or  the  thinirs  to 
which  they  entitle  omitted.^  Valid  titles  held  by  per- 
sons in  one  land  to  values  in  another  are,  however, 
part  of  the  first  land's  wealth  ;  but  all  such  rights  have 
to  be  excluded  from  an  inventory  of  the  world's  wealth. 
In  estimating  general  wealth  the  test  of  exchange'*  value 
has  but  very  limited  application. 

'  "The  wealth  of  the  country  being  the  aggregated  wealth  of  its  citi- 
zens," Gannett,  in  Int'l  Rev.,  vol.  xii.  Mulhall  computes  the  world's 
wealth  at  about  255  billion  dollars:  lands  and  forests  84V  billion,  cattle 
10}  billion,  railways  20,  houses  61,  furniture  30J,  merchandise  6i,  bullion 
nearly  5,  shipping  li,  other  forms  of  material  goods  nearly  20.  He  de- 
parts from  Gannett's  loose  maxim  so  far  as  to  reckon  in  public  works,  — 
at  15I  billion.  As  to  the  rest  he  probably  estimates  by  exchange  value 
[see  n.  4].  Computing  as  he  does,  and  omitting  public  works,  we  may 
place  the  whole  wealth  of  the  United  States  in  1888  at  51  billion,  the 
yearly  earnings  at  from  10  to  12,  the  yearly  savings  at  900  million, 
and  the  daily  [week-day]  savings  at  3  million.  Such  approaches  to 
fact  are  valuable  for  comparison  of  nation  with  nation  and  section  with 
section,  still  are  approaches  only.  The  same  is  true  of  the  following 
wealth-statistics  from  the  United  States  Census  Reports. 


Th^  Nation's 

Percentage  of 

Percentage  of 

.\verage  No. 

Census  of 

Population 

Wealth:  Millions 

Increase  in 

Increase  in 

of  Dollars 

of  Dollars 

Population 

Total  Wealth 

f>er  capita 

1800.    .    . 

5.305.937 

:,072. 

35.02 

43- 

202.13 

1810  .    .    . 

7.239.814 

1,500. 

36-43 

39- 

207.20 

1820  .    .    . 

9,638,191 

1,882. 

33-13 

24.4 

•95. 

1830  .    .    . 

13,866,020 

2.653- 

3340 

41- 

206. 

1840  .    .    . 

17,069,453 

3.764- 

32.67 

41-7 

220. 

i8so  .    .    . 
i860.    .    . 

23,191,876 

7,«35-8 

35-87 

89.6 

307.67 

31,300,000 

16,159. 

35-59 

126.4      ' 

5»4- 

1870  .    .    . 
z8fe.    .    . 

38,558,000 

30,069. 

22. 

86.1 

780. 

50,155.783 

43.642- 

30. 

43- 

870. 

IXTRODUCTIOX  J 

2  The  immaterial  variety  is  never  referred  to  in  listing  wealth.  The 
chief  reason  for  the  omission  is  the  indefiniteness  of  the  thought  and  the 
difficulty  of  appraising  immaterial  riches  in  dollars  and  cents.  But  assuredly 
it  ought  not  to  be  ignored.  Dollars  cannot  measure  the  superiority  of  health 
to  sickness  or  of  satiety  to  hunger,  yet  these  differences  are  as  thinkable  and 
important  as  they  are  familiar. 

•■'  If  a  mortgaged  farm  is  put  down  for  its  whole  worth  and  the  mort- 
gage too,  evidently  all  the  property  covered  by  the  mortgage  is  twice  told. 
So  of  a  railway  and  its  stock  or  bonds.  In  case  of  a  great  corporation,  if 
we  are  summing  up  the  nation's  wealth,  a  careful  inventory  would  be  a  much 
safer  index  than  the  market  value  of  the  stock.  A  given  patent  or  copy- 
right is  no  increment  to  the  national  wealth,  though  a  good  system  of  such 
rights  might  be.  Certain  credit-instruments  are  wealth  [§  84,  n.  3,  §  86,  n.  3]. 

*  Even  Knics,  Geld,  23,  takes  money-exchange  power  as  practically  his 
criterion  of  wealth.  But  there  is  a  vast  deal  of  every  land's  wealth  whose 
proportion  to  the  whole  is  not  so  much  as  indicated  by  its  power,  if  it  has 
any,  in  exchange.  How  little  would  roads  and  streets  sell  for  in  compari- 
son with  the  contribution  they  make  to  the  community's  welfare?  Good 
sewers  are  worth  all  they  cost  and  usually  much  more,  but  could  not  be 
sold  at  all. 

§  3     Economic  Evolution 

Schaejffle,  Ban  u.  Lebeii  <i.  sociaUn  Kiirpers,  vol.  ill,  402,  sqq.  Schoenberg,  Hand- 
buch  d.  I'ol.  Oek.,  vol.  i,  ch.  i.  Cohn,  91-93.  Hyndtnan  a'  Morris,  Summary  of 
Socialism. 

In  man's  economic  life  ^  hitherto  and  now  the  follow- 
ing more  or  less  clearly  defined  stages  or  gradations  ^  are 
discernible :  (i)  the  hunting,^  (ii)  the  pastoral,^  (iii)  the 
agricultural,  (iv)  the  manufacturing  and  commercial, 
and  (v)  that  of  credit,  free  contract,  and  giant  indus- 
tries. In  (i),  man  is  totally  dependent  on  nature,  hard- 
worked  and  poor.  Industry  has  no  diversity,  war  is 
incessant  and  population  scant  and  homogeneous.  Coni- 
nuinity  of  property^  prevails,  and  there  is  neither 
exchange  nor  money.  The  succeeding  stages  witness 
progressive  improvement  in  all  these  particulars.  In 
this,  to  a  good  degree,  civilization  consists.     Slavery  •• 


6  INTRODUCTION 

and  other  forms  of  social  cleavage  begin  with  ii,  also 
exchange  and  the  genuine  unrest  of  life  and  growth. 
In  iii,  industry  becomes  greatly  diversified,"  and  man, 
no  longer  her  slave,  largely  determines  what  nature 
shall  produce.  He  settles  in  communities.  Law  and 
the  state  develop,  militar)-  system  and  new  social 
formations  rise.  Of  iv,  city  life,  the  tllvision  of  labor, 
exchange,  and  metallic^  money  are  the  chief  marks. 
Slaver}'  now  goes  down  and  a  separate  wages-class 
emerges.  Law  and  the  state  assume  higher  and  more 
complex  forms,  and  leisure  makes  possible  the  amass- 
ing of  intellectual  wealth.  Stage  v  is  that  at  which 
America  and  West  Europe  now  are/^ 

'"Life"  as  opposed  to  "doctrine"  {IVirisckaft :  Wirtsckaflslehre]. 
Of  course  men  have  always  had  an  economic  experience  of  some  sort, 
but  the  study  of  this  is  a  recent  matter.  Cf.  §  5.  Sound  economic  doctrine 
must  be  based  upon  large  knowledge  of  economic  life. 

2  "  Gradations  "  as  well  as  "  stages,"  because  certain  peoples,  the  Esqui- 
maux, Bushmen,  and  Hottentots,  e.g.,  do  not  seem  to  improve  at  all. 

3  Fishing  tribes  are  on  substantially  the  same  plane  with  hunters,  both 
these  being  "  occupatory  "  industries  {occupare  in  Roman  law  =  to  take 
possession  of],  but  fishers  are  usually  the  better  off,  have  the  denser  popu- 
lations, sometimes  own  slaves,  and  are  apt,  instead  of  becoming  shepherds 
and  farmers,  to  grow  first  into  pirates,  then  into  ocean-carriers. 

*  Pastoral  peoples  are  always  nomadic  as  well,  driving  their  herds  from 
place  to  place  to  find  the  best  pastures  [Genesis,  ch.  xiii]. 

'•>  Except  perhaps  in  personal  clothing  and  each  man's  kit  of  utensils  for 
taking  and  skinnfng  animals,  etc.,  and  for  war. 

«  Hunters  could  utilize  slaves  only  by  giving  them  arms,  which  would 
render  them  dangerous;   but  shepherds  may  employ  them  for  herdsmen. 

'  That  is,  though  agriculture  forms  the  staple  calling,  the  lower  kinds  of 
industry  still  continue.  Besides,  many  ancillary  trades  are  now  demanded, 
as  those  of  smiths  and  wood-workers. 

f  Metal  money  has  been  found  among  pastoral  nations,  gotten  probably 
in  the  way  of  exchange  with  those  more  advanced.  Cattle  [so  pecunia,  from 
tectu.     "  Cattle  "  and  "  capital "  are  originally  the  same  word,  from  capuJ 


INTRODUCTION  / 

through  aipi/alis,  c]  arc  their  common  medium  of  exchange.  Slaves, 
too,  are  so  used.  In  stage  i  barter  prevails.  I'or  the  difterence  between 
barter  and  money,  see  in  Part  111.  Ancient  society  at  this  general  level 
(iv)  differed  from  modern.  It  did  not  reject  slavery,  and  its  cities  sprung 
from  commercial  not  from  manufacturing  necessities.  Greece  and  Rome 
had  no  factories,  whence  to  form  cities  like  Lowell  or  Patcrson.  There 
were  at  Athens,  indeed,  immense  workshops,  where  thousands  of  slaves 
wrought,  but  apparently  they  did  not  exist  to  secure  division  of  labor. 
Blanqui,  vol.  i,  31- 

'■'  The  stage  on  whose  phenomena  all  the  current  English  works  in  Eco- 
nomics are  based, —  Adam  Smith,  Ricardo,  Mill,  Senior,  and  the  numerous 
manuals  which  have  been  published  this  side  the  Atlantic.  Only  quite 
recently  have  economists  seen  the  need  of  a  bioader  historical  outlook. 
Cf.  §§  II,  12.  For  a  graphic  comparison  between  xivth  and  xixth  century 
society,  see  H.  C.  Adams,  Outline  of  Lectt.  upon  P.  E.,  67  sq. 

§  4     Economics  a  Science 

Marshall,  Ec.  of  Ind.,  §  2.  Mill,  Logic,  bk.  vi,  ch.  iii,  cf.  ch.  vi.  Schurman,  Eth. 
Import  of  Darwinism,  ch.  i.  IVagner,  in  Quar.  Jour.  Econ.,  vol.  i,  117  sqq.  Cohn, 
Einl.,  ch.  ii.  Rosclier,  Einl.,  ch.  ii.  Cossa,  pt.  i.,  ch.  iv,  pt.  ii,  ch.  i.  Newcomb, 
Princt.  Rev.,  Nov.  1884.    Cairnes,  Logic.il  Method,  i,  ii. 

As  Economics  canvasses  phenomena  in  classes,  and 
ascertains  and  expounds  their  underlying  laws,  it  may, 
however  inexact  and  as  yet  incomplete,  justly  be  re- 
garded a  science.^  In  this  character  it  is  partly  de- 
ductive, partly  inductive,  the  first  as  applying  certain 
already  admitted  laws  of  human  nature  and  of  physics, 
the  second,  inasmuch  as  by  the  aid  of  observation,  ex- 
perience, statistics,  and  history,  it  sets  forth  the  concrete 
working  of  these  laws  and  finds  out  others. 

^  See  Mill,  as  above,  ch.  vi,  also  chaps,  ii,  x,  xi.  It  has  been  objected 
that  Economics  cannot  be  a  science  because  man's  will  is  free.  But  free- 
dom and  action  under  law  are  not  incompatible.  The  notion  that  there  is 
no  science  but  exact  science  is  as  vicious  as  it  is  common  \^iier  iiber  den 
Strang  dcr  "  /■'xatl/teil"  schlagenJer  iValur/orscher,  SchaefFle,  Letters, 
15].  A  science  may  be  called  exact  when  the  causes  and  laws  with  which 
it  deals  arc  not  only  knowable  but  known.     Pure  mathematics  approaches 


8  INTRODUCnON 

(his  character  nearest.  A  potentially  exact  science,  whose  causes  and  laws 
are  in  their  nature  knowable  but  not  yet  studied  out,  as  meteorology  and 
tidology  at  present,  might  be  styled  "  incomplete."  "  Inexact  "  are  those 
sciences  where  occult  causes,  whose  working  the  human  mind  with  its 
present  powers  is  unable  to  trace,  more  or  less  perturb  the  action  of  the 
knowable  and  known  causes.  All  the  social  sciences,  including  Fxono- 
mics,  are  of  tlie  last  order,  as,  in  a  degree,  are  all  those  which  have  to  do 
with  life.     Study  §  15  [and  notes]  along  with  this  one. 

§  5     Modern 

Ingram,  Hist,  of  Pol.  Ec,  chaps,  i,  ii.     Ferry,  Elements,  ch.  !. 

The  science  i.s  of  recent  origin.  In  ancient,  and 
even  in  mediaeval  times,  while  many  true  notions  re- 
garding it  were  advanced,  as  by  Plato,  Aristotle,  Xeno- 
phon  and  the  Roman  lawyers,^  its  facts  were  too  little 
observed  and  reduced  to  order  to  constitute  a  science. 
The  real  springs  of  public  prosperity  were  either  un- 
perceived  or  not  investigated.^  Slavery  was  universal, 
the  accumulation  of  wealth  decried.'^  Industry  and 
the  mechanic  arts  were  despised,  wars  continual,  and, 
as  to  property,  far  more  destructive  than  now,  subju- 
gated lands  laid  waste,  and  no  means  recognized  of 
enriching  one  country  but  plundering  others. 

'  Thus  Plato  has  these  worthful  apcr(;us  :  gold  and  silver  not  valuable 
in  se ;  too  much  gold  possible;  the  advantage  of  the  division  of  labor  [the 
last,  shared  by  all  the  ancients  above  named].  Aristotle  distinguishes 
utility  from  value  and  natural  wealth  from  artificial.  Xenophon  descries 
the  true  nature  of  wealth,  of  money,  and  of  prices,  Dcmostlienes  that  of 
capital  [ai^op/x^,  ipa.voi\.  D.  extends  the  notion  to  cover  incorporeal  caji- 
ital.  Ulpian  neatly  defines  property  [not  wealth]  as  what  can  be  bouglit 
and  sold  :  F.a  enim  RKS  est  quae  e»ii  el  venire  polcsl.  But  all  these 
writers,  to  mention  no  more  of  their  false  ideas,  believe  in  slavery  and 
over-value  money.  Is  Horace  consciously  arguing  against  the  bullion 
theory  [§  7,  n.  3]  at  Sat.  I,  i,  40-45,  "Unless  you  reduce  your  gold-pile 
it  has  no  beauty"?  On  the  Roman  authors  of  economic  ideas,  Ingram. 
18  sqq. 


INTRODUCTION  9 

-  The  only  wealtliy  nations  of  antiquity  wliicli  Ijreil  minds  capable 
of  pursuing  such  a  study  were  Athens  and  Rome,  precisely  the  ones 
whose  entire  economic  development  was  artilicial.  They  became 
rich  by  exploiting,  one  the  Confederacy  of  Delos,  the  other  the 
world. 

*  Cicero,  de  officii s,  i,  42,  perfectly  sets  forth  in  this  matter  the  spirit  of 
the  classical  world :  Jlliberales  autem  et  sordidi  quaestus  mercenariorum 
omnium,  quorum  operae,  uon  artes  emuntur.  Est  autem  in  illis  ipsa 
merces  nuctoramentuni  servitutis.  Sordidi  etiam  putandi,  qui  mercantur 
a  mercatorihus  quod  stalim  vendant,  nihil  enim  projiciant,  nisi  adtnodum 
mentiantur.  Nee  vero  est  quidquam  turpius  ^ujiiitate.  Opificesque  omnes 
in  sordida  arte  versantur ;  nee  enim  quidquam  ingeiiuum  habere  potest 
officina.  .  .  .  Quihus  autem  artihus  aut  prudentia  major  inest,  aut  non 
mediocris  utilitas  quaeritur,  ut  medicina,  ut  architectura,  tit  doctrina 
rerum  honestarum,  eae  sunt  iis,  quorum  ordini  conveniunt,  honestae. 
Mercatura  autem,  si  tenuis  est,  sordida  putanda  est;  sin  magna  et  copiosa, 
viulta  undique  apportans,  multaque  sine  vanitate  impertiens,  non  est 
admodiim  vituperanda.  .  .  .  Omnium  autem  rerum,  ex  quibtts  aliqtiid 
acquiritur,  nihil  est  a^^ricultura  melius,  nihil  uberius,  nihil  dulcius,  nihil 
homine  libtro  dignius. 

§  6     Its  Origin 

Blanqui,  chaps,  xiv-xxx.     Ingratn,  ch.  iv.     Laughliii,  eJ.  of  Mill,  Int.  Sketch. 

The  necessary  new  thought  was  turned  to  economic 
facts  mainly  through  :  i  Commercial  activity  during  and 
after  the  Crusades/  and  especially  after  the  period  of 
tliscovery  began,  ii  Rise  of  prices  incident  to  the  in- 
creased bulk  2  of  the  precious  metals  consequent  upon 
opening  the  American  mines,  iii  Frequent  deba.se- 
ment  of  monies  by  monarchs.''^  iv  New  need  of  reve- 
nues and  the  changed  mode  of  raising  these,  attend- 
ing the  transition  from  feudalism  to  modern  states.* 
V  Questions  of  trade  arising  in  the  application  of  the 
European  col<)nial  system.^  vi  Enlarged  acquaintance 
with  the  economic  conceptions  of  the  Roman  law.*" 
vii  The  tlcvclopment  and  organization  of  credit. 


lO  INTRODUCTION 

^  The  greatness  of  the  famous  merchant  cities,  Venice,  Genoa,  Pisa,  and 
Ainalti,  now  began.  Commerce  and  business  were  henceforth  reputable, 
and  men  engaged  in  them  could  be  raised  to  the  nobility.  The  Ilanseatic 
League  dates  from  about  1260,  ten  years  before  the  last  crusade.  On  this 
see  Blanqui,  ch.  xvi. 

-  The  general  law  is,  the  more  money  in  circulation  the  less  the  pur- 
chasing power  of  each  piece,  and  the  higher  the  range  of  prices.  See  the 
liiscussions  of  Part  III. 

3  Their  regular  resort  for  centuries  so  often  as  impecunious.  The  usual 
mode  was,  while  leaving  the  face  of  the  coins  unchanged,  to  abstract  part 
of  the  true  metal,  putting  baser  in  its  place.  Not  seldom  they  would  force 
the  money  so  debased  into  circulation  at  its  face  value,  and  accept  it  only 
at  its  real  value.     So  did  Emperor  Ferdinand  II  in  Bohemia,  1620. 

■•  This  change  involved  paid  armies,  costly  ministries  and  embassies  and 
the  expensive  pomp  and  circumstance  of  great  courts.  Systematic  taxa- 
tion and  fiscal  machinery  had  to  be  resorted  tt),  enforcing  economic  study. 

^  See  Blanqui's  excellent  chapter  [xxiii]  on  this.  Every  nation  which  had 
colonies  regarded  and  used  them  simply  as  means  for  enriching  the  mother 
state.  There  were  three  different  plans  for  accomplishing  this :  i  Spain 
and  Portugal  kept  colonial  trade  in  the  hands  of  the  government,  ii  Hol- 
land, Sweden,  Denmark,  and  France  till  1720,  placed  it  exclusively  in  the 
power  of  a  gigantic  stock  company,  iii  England  [Lecky,  Eur.  in  xviiith 
Cent.,  vol.  ii,  8  sqq.],  also  I-Vance  after  1720,  effected  a  national  monopoly 
by  navigation  laws  practically  to  exclude  foreign  vessels  from  visiting  their 
colonies.     Here  again  m  as  necessity  for  study. 

6  Roman  law  was  at  no  moment  in  the  middle  age  disused  or  unknown, 
but  the  discovery,  at  the  sack  of  Amalfi,  1 135,  of  the  Florentine  copy  of 
the  Pandects  immensely  stimulated  the  study. 

§  7     The  Mercantile  System 

Ingram,  ch.  iv.  Ad.  Smith,  Weahli  of  N.T.,  bk.  iv,  ch.  i.  Roscher,  Gesch.  d.  Nat. 
Oek.  in  Deutschland,  22^  %(\(\.  /Vrry,  Klcments,  ch.  xiv.  /*/(7h^«/',  chaps,  xxvi- 
xxix.     Schoenberg,  \o\.\,6-iSi\(\.     Cossa,  GmAc,  iiq  sqq.     OV/j/,  94-100. 

While  much  vigorous  economic  thinking^  was  clone 
in  the  middle  age,  especially  by  the  canon  lawyers,  the 
earliest  serious  efforts  to  arrange  economic  data  as  an 
orderly  whole  were  made  in  Franco,  resulting,  provis- 
ionally,   in    the    so-called    Mercantile    System. ^      This, 


INTRODUCTION  II 

neglecting  aprriculture,  magnified  other  businesses, 
and  coninierce  in  particular,  yet,  regarding  money  as 
the  most  real  form  of  wealth,'*^  insisted  that  in  order  to 
profit  by  trading,  a  nation  must  have  the  *  balance  of 
trade"*  in  its  favor,  work  mines,  tax  imports,  subsi- 
dize exportation,  and  conduct  its  whole  policy  with  the 
view  of  amassing  the  greatest  possible  hoard  of  the 
precious  metals.  To  this  end  ubiquitous  governmental 
regulation  of  industries  was  necessary,  with  privileges 
and  monopolies  to  all  inland  business  deemed  import- 
ant, also  encouragement  to  domestic  shipping,  discour- 
agement to  foreign.  These  notions,  while  more  explicit 
in  France,  were  common  to  all  Europe,  and  determined 
the  character  of  economic  and  international  politics  for 
centuries.     Not  even  yet  are  they  fully  overcome.^ 

1  Particularly  upon  money  and  the  problem  of  a  fair  price  [justum 
pretium'].  The  latter  was  discussed  by  every  great  theologian  from  St. 
Augustine  down.  This  renowned  doctor  condemns  the  man  who  would 
vili  einere  ct  caro  vendere,  and  after  him  the  whole  mediaeval  church 
taught  that  such  a  practice  was  wrong.  By  justum  pretium  was  meant 
cost,  including  labor  and  time  of  the  salesman  in  getting,  keeping,  and  sell- 
ing his  ware.  The  principle  of  supply  and  demand  as  price-determinant 
was,  so  far  as  recognized  at  all,  denounced  as  necessarily  unrighteous.  Far 
clearer  was  mediaeval  thinking  on  the  subject  of  money.  Nicolas  Oresi- 
mus,  bp.  of  Lisieux,  f  1382,  has  left  us  a  sermon  containing  a  theory  of 
coinage  almost  exactly  modern  in  its  ideas.  Yxom.  the  schoolman,  Gabriel 
Biel,  we  have  another  monetary  discussion  of  decided  worth. 

2  Sometimes  styled  "  Colbertism,"  after  Colbert,  the  distinguished  min- 
ister of  Louis  XIV.  On  Colbert's  views,  Roscher,  as  above,  229,  and 
Blanqui,  ch.  xxvi.  The  latter  will  have  it  that  the  system  was  Italian  in 
origin,  and  brought  to  honor  by  Spain,  and  that  in  spirit  Colbert  was  not  a 
mercantilist  at  all.  His  mercantilist  views  were  certainly  more  moderate 
and  sensible  than  most  of  those  advanced  by  his  school.  Cromwell  was 
the  chief,  though  far  from  the  only,  English  ruler  to  push  the  mercantilist 
policy.      Frederick  the  Great,  also  his  father,  di<l  the  same  for  Prussia. 


12  INTRODUCTION 

'  The  "  bullion  theory.''  Blanqui  [i,  223,  ch.  xviii]  dates  Mercantilism 
from  1303.  "hen  Philip  the  P'air  forbade  the  exportation  of  gold  and  silver 
from  France.  An  English  law  of  Edward  Ill's  time  swears  inn-keepers  in 
seaport  towns  to  search  their  guests  to  prevent  the  exportation  of  money  or 
plate  [H.  Spencer,  The  New  Toryism,  8].  Even  Locke  strongly  advo- 
cated the  policy  of  piling  up  gold  and  silver  in  the  country.  All  nations 
had  laws  to  effect  this.  Yet  Ad.  Smith,  bk.  iv,  ad.  init..  Gamier,  "  Physi- 
ocrates,"  in  Lalor's  Cyclop.,  and  most  critics  state  it  too  strongly  when 
they  accuse  the  mercantilists  of  really  identifying  money  with  wealth. 
No  men  could  ever  be  so  foolish.  They  greatly  overvalued  it,  however, 
relatively  to  other  wealth,  just  as  thoughtless  people  do  now.  For  the 
error  of  this  view,  see  §  9.  It  arose  partly  from  the  ready  serviceableness 
of  money  for  all  purposes,  partly  from  the  need  which  each  nation  then 
felt  of  a  great  hoard  of  gold  and  silver  for  war,  and  partly  from  mistakenly 
comparing  a  nation  to  a  manufacturing  town,  taking  in  raw  material  to  be 
worked  up  and  sold  for  money  [next  note]. 

■•  Thomas  Mun  said:  "The  secret  means  to  enrich  the  nation  is  to  sell 
each  year  to  foreigners  more  wares  than  we  consume  of  theirs,"  receiving 
the  balance  in  money,  of  course.  The  older  mercantilists  believed  that 
money  should  never,  under  any  circumstances,  be  permitted  to  go  '•  forth 
of  the  realm."  Mun  and  the  newer  school  held  differently.  They  re- 
garded its  exportation  sometimes  profitable,  as  a  means  of  getting  back 
much  more,  and  likened  the  outgo  and  return  to  seed-time  and  har- 
vest. The  Emperor  Charles  V  forbade  Spain  to  export  precious  metal  or 
raw  material.  An  imperial  decree  in  Germany,  1500,  commanded  tailors 
to  work  up  none  but  domestic  cloth. 

*  Daily  one  may  read  in  the  newspapers  expressions  to  the  effect  that 
fortune  is  smiling  upon  us  if  we  happen  to  be  importing  gold,  frowning  if 
the  same  is  leaving  us.  As  if  a  land  cOuld  not  be  money-poor  !  Or  as  if 
it  were  possible  for  all  our  money  to  desert  the  country !  And  Mercantil- 
ism at  large  is  spoken  of  even  by  competent  economists  as,  for  past  times. 
"  relatively  justifiable." 

§  8     Progress 

Ingram,  51  sqq.    Gamier,  "  Physiocrates,"  in  Lalor.    Horn,  L,  Econ.  Pol.  avant  let 
Physiocrates.     Cohn,  101-107.     Cossa,  pt.  ii,  ch.  iii. 

During  the  XVIIth  and  XVIIIth  centuries,  economic 
topics  were  discussed  by  many  German  writers,  com- 
monly in    a    narrow,   mercantilist    spirit,^  yielding   few 


INTRODUCTION  1 3 

valuable  insights,  and  mostJy  without  discovery  of  the 
nexus  between  these.  More  advance  was  made  in 
Uuj^laiid.  Sir  William  Petty,'-^  b.  1623,  argued  that 
value  originates  in  labor,  and  demonstrated  the  advan- 
tages that  flow  from  the  division  of  labor.  He  likewise 
anticipated  Ricardo's  law  of  rent  and  theory  of  wages. 
Sir  Dudley  North,  169 1,  affirmed  that  the  whole  world 
is,  as  to  trade,  one  nation,  that  laws  cannot  fix  prices, 
that  money  is  merchandise,  subject  to  glut  as  well  as  to 
scarcity,  and  that  all  special  governmental  favor  to  any 
one  interest  is  an  abuse,  cutting  off  so  much  benefit  from 
the  public.  Locke,  1690,  1695,  noted  the  distinction 
between  utility  and  value,  and  denied  the  ability  of  gov- 
ernments to  fix  the  purchasing-power  of  money.  Hume'^ 
showed,  1752,  that  wealth  consists  not  in  money  but  in 
the  supply  of  wants,  and  that  the  prosperity  of  one  land 
is  the  prosperity  of  all.  Berkeley, in  his  Querist,*  1756, 
questioned  '  whether  it  were  not  wrong  to  suppose  land 
or  gold  and  silver  either  to  be  wealth.'  While,  till 
Hume,  no  English  writer  appreciated  Petty  and  North, 
similar  views  were  championed  with  exceeding  zeal  in 
France  by  Boisguillebert.^  Vauban,  F^uelon,  Montes- 
quieu, and  Cantillon. 

'  Zincke,  1692-1769,  was  the  only  noteworthy  exception.  See  Ingram,  So. 

-  On  Petty,  see  Wirth,  in  Braun's  Vierteljahrschrift,  1863,  pp.  no  sqq. 
He  was  one  of  the  most  versatile  of  men :  —  pedler,  sailor,  physician, 
draughtsman,  inventor,  scientific  writer,  land-surveyor,  organizer  of  busi- 
nesses. His  education  was  but  ordinary,  gotten  mainly  at  the  grammar 
school  of  Romsey,  in  Hampshire,  his  native  town,  though  he  had  studied  a 
little  at  the  University  of  Caen,  Xormandy.  In  youth  distressingly  poor, 
he  became  rich,  leaving  an  ample  fortune  to  his  son,  who  was  created 
Baron  Shelburne,  and  founded  the  Landsdowne  family.  Petty,  so  early, 
ably  discussed,  and  answered  negatively,  the  question  so  much  agitated 
still,  whether  government  can  establish  a  permanent  value-relation  between 


14  INTRODUCTION 

gold  and  silver.  This  in  ch.  x  of  his  Pol.  Anatomy  of  Ireland,  published 
in  1 69 1  among  his  posthumous  works. 

^  Ad.  Smith's  personal  friend  and  chief  British  forerunner  as  an 
economist. 

*  First  published  in  1735. 

^  On  these  Frenchmen,  see  Ingram,  57  sqq.  Fenelon's  Telemaque  did 
more  than  anything  else  to  popularize  the  new  views  in  France.  Cantillon  was 
a  French  merchant  of  Irish  extraction.  He  is  hardly  distinguishable  from  the 
physiocratic  writers.  Jevons  accounted  him  the  founder  of  that  school  and 
so  of  economic  science.  He  deserves  this  eminence  no  more  than  Bois- 
guillebert.  Both  differ  from  the  regular  physiocrats  in  relative  failure  to 
array  their  insights  as  a  system,  and  in  making  less  of  the  /aiv  of  nature 
[see  next  §]. 

§  9     Physiocracy 

Ad.  Smith,  bk.  iv,  ch.  ix.      Gamier,  "  Physiocrates,"  in  Lalor.       Blanqui,  ch.  xxxii. 
Ccssa,  pt.  ii,  ch.  iv.     Batbie,  Turgot.    Condorcet,  do.     Tissot,  do.     Cohn,  lax-xaq. 

This,  the  next  system,^  also  French  in  origin,  went  to 
the  oppo.site  extreme  from  Mercantilism,  making  land 
the  only  source  of  income,  and  agriculture  alone  pro- 
ductive. The  physiocrats  maintained  that  :  i  Gold  is 
never  the  end  of  trade,  but  only  a  means,  ii  A  nation 
cannot  in  the  long  run  sell  more  than  it  buys,  and  would 
not  be  benefited  if  it  could,  iii  All  governmental  privi- 
leges and  monopolies  relating  to  business  and  com- 
merce are  wrong,  iv  Trade,  both  domestic  and  foreign, 
should  be  free,  state  interference  with  business  affairs 
reduced  to  a  minimum. ^  v  The  sole  tax  should  be  a 
direct  one,  upon  land  rent.^  These  principles  they  con- 
nected with  their  doctrines  of  natural  rights  and  a  con- 
dition and  law  of  nature,*  which  they  expounded  in  a 
way  to  belittle  the  state  and  exhibit  all  conscious  action 
of  society  as  necessarily  artificial.  This  theory  is  re- 
markable for  its  influence  upon  Adam  Smith,  and  in 
hastening  the  French  Revolution. 


INTRODUCTION  1 5 

^  We  may  speak  of  this  one  as  having  rallied  a  school  to  its  support. 

2  The  "  laissezfaire"  doctrine,  which,  with  that  of  natural  law,  forms 
the  heart  of  Physiocracy.  The  phrase  was  first  used  in  an  economic  sense, 
though  doubtless  not  with  full  physiocratic  meaning,  by  a  merchant  in  a 
conversation  with  Louis  XIV'.  The  formula  luissez  nous  /aire  was  employed 
by  Legendre,  the  geometrician,  in  1680,  disputing  with  Colbert.  The 
Y>hxa.?>c  laissezfairc  w:^s  introduced  to  scientific  literature  in  1736,  by  the 
Marquis  d'Argenson,  finance  minister  to  the  Duke  of  Orleans,  Regent  of 
France  after  Louis  XIV's  death.  Dr.  Gournay  was  the  earliest  physiocrat 
to  utter  it,  which  he  did  with  the  addition,  "  et  laissez  passer."  From  him 
this  language  became  the  physiocrats'  watchword  [not,  however,  separating 
"/aire"  and  "passer"  as  if  they  meant  respectively  "produce  "  and  "ex- 
change"].    See  on  this,  Pol.  Sci.  Quarterly,  vol.  ii,  706. 

3  At  a  good  remove,  however,  from  the  thought  of  Henry  George,  i 
The  physiocrats  would  tax  improvements  on  land  :  George  not.  ii  They 
expected  revenue  mainly  from  country  sections  and  from  fertility  of  soil: 
he  has  regard  to  unearned  increment  from  the  growth  of  cities,  towns  and 
villages,  iii  They  taxed  the  product  of  labor,  and  because  it  was  such  :  he 
sedulously  exempts  this. 

■*  "The  state  of  nature  was  the  reign  of  God."  Pope,  Essay  on  Man, 
Epistle  iii,  line  149.  This  essay  is  a  great  jnece  for  the  doctrine  of  a  state 
of  nature  and  for  the  ethics  of  the  XVIIIth  century.  The  thesis  of  Ep. 
iii  is  that  the  interest  of  one  is  the  interest  of  all.  Sir  H.  Maine,  in  his 
Ancient  Law,  traces  the  history  of  the  "  law  of  nature  "  conception.  The 
distinction  between  man's  condition  untler  the  minimum  of  society's  influ- 
ence and  that  amid  the  play  of  fully  developed  social  forces,  is  real  and 
importaHt.  One  may,  for  lack  of  nicer  descriptives,  name  these,  as  the 
physiocrats  did,  respectively  the  state  of  nature  and  the  state  of  culture. 
Only  it  is  senseless  to  account  the  latter  as  of  necessity  depraved  or  per- 
verse. It,  too,  is  in  its  way  a  state  of  nature.  This  admission  should  not, 
however,  carry  us  to  the  counter  error  of  praising  all  past  acts  or  states  of 
society  as  alike  good  simply  because  they  have  had  place  in  history.  Into 
this  fallacy  fall  those  [§  7,  n.  5]  who  attempt  to  justify  Mercantilism. 

§   10     Adam  Smith 

Ingram,  87  sqq.     "  Smilh,  Adam,"  in  the  Cyclopedias.     Cossa,  pt.  ii,  ch.  v.     Cohn, 
107-115.     Buckle,  H.  of  Civilization,  vol.  i,  152  sqq.,  602  sqq. 

But  Economics  can  hardly  be  said  to  have  attained 
scientific  rank  till   the  publication,  in    1776,  of   Adam 


l6  INTRODUCTION 

Smith's  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations,  —  a  truly  epoch-making^  work,  far 
the  most  important  single  treatise  ever  devoted  to  the 
science.  The  material,  so  rich  and  large,  which  Turgot, 
Hume,  and  others  had  gathered  and  partially  systema- 
tized, it  at  the  same  time  utilized,  purified,  and  arranged. 
Smith's  central  thought,  instead  of  commerce  on  the 
one  hand  or  agriculture  on  the  other,  is  Industry,  which 
he  makes  include  both.  In  his  system  labor  is  the  one 
source  of  value  and  ultimate  determinant  of  prices. 
Productive  labor,  which  is  here,  against  the  physiocrats, 
extended  to  include  manufactures  and  commerce,  though 
not  *  services,' 2  as  of  teachers,  physicians,  savaus,  etc., 
is  declared  to  be  the  real  creator  of  wealth.  Smith 
agrees  with  the  physiocrats  that,  as  a  rule,^  industry 
ought  to  be  unimpeded  by  governmental  action,  left  to 
free  competition  under  the  benign  spur  of  individual 
self-interest.  Like  them,  too,  he  continually  appeals  to 
what  is  natural.^  The  exceeding  merit  of  Smith's  per- 
formance lay  in  his  exhibition  of  the  laws  governing 
economic  phenomena,  and  in  his  facile  and  copious 
presentation  of  historical  proofs.  His  book  also  con- 
tains a  number  of  discussions,  masterly  and  never  yet 
equalled,  of  certain  weighty  specific  questions,  as  taxa- 
tion, the  advantages  of  the  division  of  labor,  the  causes 
of  the  diversity  in  wages,  and  the  difference  between 
money  and  other  capital.  His  refutation  of  the  bul- 
lion theory  it  would  be  as  hard  to  improve  as  to 
impugn. 

'  IIo'.v  far  Smith  was  a  creator  will  be  debated  always.  He  raised  few 
new  problems,  and  the  scope  of  his  actually  fresh  insight  was  not  large. 
But  he  saw  in  every  direction  somewhat  that  was  new,  and  saw  clearly 


INTRODUCTION  1 7 

what  he  saw,  whether  at  first  or  at  second  hand.  Withal  he  knew  how  to 
expound  feUcitously,  keeping  up  interest  amid  the  dreariest  details.  His 
position  as  to  Economics  is  much  like  Plato's  touching  philosophy.  Each 
had  numerous  and  great  forerunners,  yet  succeeded  in  making  himself  for- 
ever the  necessary  point  of  departure  for  every  intelligent  student  and 
writer  in  his  line.  Whole  pages  and  chapters  in  the  most  recent  treatises, 
however  remote  the  writer's  standpoint  from  that  of  Smith,  read  as  but 
transcripts  from  the  old  master's  book. 

•^  He  does  not,  in  naming  them  unproductive,  deny  the  usefulness  of 
such  services.  They  may  be  even  indispensable.  Productive  is  labor 
which  creates  wealth,  and  it  is  Smith's  habit  to  restrict  wealth  to  material 
entities.  Useful  abilities,  however,  he  designates  as  capital,  and  hence,  it 
would  seem,  must  have  thought  them  wealth  as  well.  The  two  lines  of 
representation  appear  inconsistent. 

5  He  approved  England's  navigation  policy  [§  6,  n.  5],  as  a  means  not 
to  national  wealth,  but  to  the  naval  power  so  necessary  for  England  in 
facing  other  nations.  Smith  was  far  from  going  the  physiocrats'  length  in 
denouncing  all  governmental  touch  of  industry. 

*  See  preceding  §,  n.  4. 

§   1 1     The  Smithian  School 

Ingram,  110-195.     Breniano .Die  klassische  Oekonomie  [1888].     Lunt,  Pres.  Cond.  o( 
Pol.  Econ.     Cohn,  115-123.     Sidgivick,  Principles,  Int.    Bagehot,  Ec.  Studies,  iii. 

The  influence  of  the  Wealth  of  Nations  upon  eco- 
nomic thought  was  very  great.  Hundreds  of  keen  minds 
turned  to  the  new  science  ;  minor  points  of  its  theory 
were  worked  out  ;  its  tenets  began  to  shape  legislation.' 
Ricardo  was  the  next  noted  general  expositor  in  Eng- 
land, J.  B.  Say  in  France.  Ricardo  powerfully  im- 
pressed James  Mill,  Senior,  and  J.  S.  Mill,  through 
whose  able  presentations  of  the  subject  he  silently  be- 
came for  all  lands  its  accepted  interpreter.  Adam  Smith 
was  still  praised  much,  but  read  less  and  less.  His  nar. 
rowness  and  errors  were  perpetuated,  and  his  abstrac- 
tions, untempcred  by  his  regard  for  history  and  concrete 
fact,  taken  literally  as  universal  truth.    Dogmatism,  apri- 


1 8  INTRODUCTION 

orisni,  and  passion  for  crisp  formulae  prevailed.  Xo 
side  of  man  was  studied  but  the  economic,  and  this  was 
assumed  to  have  presented  itself  always  and  every- 
where as  in  England  during  the  early  XlXth  century.^ 
Like  defects  marked  the  evolution  in  France,^  Italy,  and 
America.  Such  an  exhibition  of  Economics,*  dr^',  eccen- 
tric and  partial,  rather  than  in  the  full  sense  false,  con- 
tinued till  yesterday  the  dominant  one.  Authors  be- 
longing to  this  Orthodox  School  have,  however,  always 
differed  among  themselves  not  only  upon  lesser  but 
upon  fundamental  doctrines.  Such  have  been :  i  the 
degree  and  location  of  the  scientific  character  attach- 
ing to  Economics,  ii  the  proper  limits  of  laissez  faire, 
iii  the  theory  of  Population,  Malthus  and  his  critics, 
iv  that  of  Rent,  Ricardo  and  his,  v  that  of  Wages,  vi 
that  of  3Iouey. 

^  As  in  England  the  Factory  Laws  and  the  abolition  of  protective  duties. 

-  The  misapprehensions,  it  will  be  seen,  were  mainly  three,  those  of  i) 
' perpetualism,'  ignoring  the  change  in  human  nature  and  society  from  age 
to  age,  ii)  'cosmopolitism,'  ignoring  the  differences  among  various  peo- 
ples at  the  same  time,  and  iii)  assuming  an  '  economic  man,'  when  in  fact 
no  man's  motives  are  ever  solely  economic.  [^Riimelin,  Red.  u.  Aufsaetze, 
I»  P-  '3-]     The  first  of  these  errors  was  the  worst. 

'  Only  here  with  more  originality  and  variety.  Bastiat  [§  I,  n.  7]  was 
the  ablest  French  writer  after  Say  and  had  wide  influence  in  France  and 
outside.  His,  especially,  is  the  doctrine  of  economic  optimism,  that  the 
highest  social  weal  is  attained  when  each  individual  follows  his  own  inter- 
est.    English  economic  masters  have  never  urged  this. 

*  One  sees  how  far  just  and  how  far  unjust  it  is  to  call  all  this  'Smith- 
ian.'  '  Ricardian  '  would  be  a  stricter  designation.  German  writers  refer 
indiscriminately  to  the  '  English  School,'  '  Manchester  School,'  '  Apriorists,* 
'Dogmatists,'  'Cosmopolites,'  as  holding  these  notions.  J.  S.  Mill  had 
before  his  death,  in  1873,  emancipated  himself  at  many  points  into  a  more 
truthful  manner  of  viewing  the  science;  and  the  other  writers  here  re- 
viewed were  by  no  means  so  absolutely  out  of  the  way  as  has  often  beea 


INTRODUCTION  IQ 

represented.  No  critic  has  yet  succeeded  in  judging  between  these  and 
the  newest  writers  with  satisfactory  impartiahty  and  insight.  Sidgwick, 
Principles,  does  best. 

§    12     The  Historical  or  Aposteriori  Tendency 

Sidgivick,  Principles,  Int.,  iii.  Ingram,  ch.  vi.  James,  Pref.  to  Ingram.  Rotcher, 
§  26  sqq.;  Prelim.  Essay,  in  Eng.  Tr.  Cohn,  157-180.  Smith  [R.  M.]  and  others, 
in  "  Science  Economic  Discussions." 

Inevitable  reaction  came,  taking  chiefly  two  shapes, 
a  Socialistic  and  an  Historical,  the  former  attacking 
more  the  laissez-faire  doctrine,  the  latter  the  apriori 
character  previously  ascribed  to  the  science.  Hilde- 
brand,^  Knies,  and  Roscher^  were  the  pioneers  in  the 
historical  path,  and  their  spirit  and  method  have  more 
or  less  affected  nearly  every  economist  in  the  world. ^ 
Hence,  (i)  the  greater  insistence  now  on  historical  and 
statistical  knowledge  in  interpreting  and  applying  eco- 
nomic laws,  and  (ii)  the  inclination  in  many  quarters  to 
see  in  Economics  iiotliing  universal  or  of  the  nature 
of  law,  but  only  a  pha.se  of  history,'*  a  product  of  times, 
localities,  and  national  peculiarities,  requiring  different 
maxims  for  different  peoples.  Man  and  society,  it  is 
urged,  essentially  alter  with  centuries  and  climes.  Eco- 
nomic theory  itself  as  well  as  economic  practice  is  mat- 
ter of  historical  evolution,  growing  up  in  'living  con- 
nection with  the  entire  organism  of  a  period  in  the  life 
of  humanity  and  of  peoples,  with  and  out  of  the  given 
conditions  of  time,  space,  and  nationality,  in  fact  con- 
sisting in  these,  and  passing  on  with  them  to  new  devel- 
opments. Even  the  general  laws  of  Political  Economy 
are  nothing  but  an  historical  explication,  an  advancing 
manifestation,  of  the  truth,  a  mere  generalization  of  the 
facts  recognized  up  to  any  given  point,  and  cannot  as 


20  INTRODUCTION 

to  either  sum  or  formulation  be  declared  unconditionally 
complete.'  ^ 

1  Died  in  1878. 

-  In  the  history  of  Economics  and  in  economic  history  the  most  learned 
man  living.  lie  is  commonly  referred  to  as  head  of  the  historical  school, 
but  Knies  is  a  far  more  radical  opponent  of  the  English  method. 

3  Cf.  §  3,  n.  9. 

*  But  by  no  means  all  aposteriorists  go  as  far  as  this.  Roscher  himself 
does  not,  his  exposition  agreeing  in  the  main  rather  with  Adam  Smith's. 
He  decidedly  alleges  Economics  to  be  a  science,  based  on  laws.  So, 
indeed,  does  Knies,  but  he  minimizes  more  than  R.  the  resemblance  of 
these  [social]  laws  to  those  of  physics. 

*  Knies,  Pol.  Oek.,  p.  24.  This  he  opposes  to  the  '  absolutism  of  theory ' 
which  he  charges  upon  the  apriori  economists.  The  quotation  goes  on : 
'  The  absolutism  of  theory,  whenever  it  does  happen  to  display  validity  at 
a  certain  stage,  is  simply  a  child  of  that  time,  and  characterizes  but  a  par- 
ticular period  in  the  development  of  the  science.'  This  is  easily  seen 
to  be  the  development  hypothesis  of  general  philosophy  applied  to 
Economics. 

§   13     Professorial  Socialism 

Coisa,  Guide,  zg6.  Z.<ir/*/^>#,  Socialism  of  To-day,  ch.  xii.  Rae,  Contemp.  Socialism, 
ch.  V.  E/y,  French  and  German  Socialism,  ch.  .w.  Held,  Grundriss  fur  Vorle- 
sungen,  25  sqq.  Schntoller,  Ueber  eittige  Grund/ragen,  etc.,  31-50,  also  93  sqq. 
Meyer,  Neuere  Nationalokonomie ,  227  sqq. 

This  expression  names  a  bold  and  popular  phase 
which,  since  1872,  economic  theorizing  has  assumed 
especially  among  professors  of  Economics,  and  in  Ger- 
many. In  that  land  this  is  now  the  ruling  school,  and 
an  increasing  number  of  the  foremost  English  and 
American  economists  are  its  adherents.  The  professo- 
rial socialists,^  like  the  aposteriori.sts,  have  little  faith  in 
any  natural  or  universally  valid  laws  of  Economics,  and 
insist  on  the  relativity  of  its  doctrines  to  time,  place, 
and  hi.story.  They  indeed  differ  from  writers  like  Ros- 
cher,2  less  in  virtue  of  any  strict  principle  than  through 


INTRODUCTION  21 

peculiar  emphasis  upon  certain  points,  i  They  make 
'wealth  '  (Hstincllv  subordinate  to  *maii'  as  the  central 
economic  conception,  refusing  to  sunder  Economics 
sharply  from  sociology  in  general.^  ii  They  assert  a 
vital  relation  between  ethics  and  Economics,  insisting 
that  human  nature  is  essentially  altrnistic,  and  that,  go 
far  from  self-interest,  in  whatever  sense,*  being  the  sole 
economic  motive,  wealth  is  always  in  large  part  a  product 
of  moral  antl  religious  factors,  iii  They  ardently  op- 
pose laissc"  faire  as  presumptive  maxim,^  ami  deny 
Bastiat's  contention  that  harmony  of  interests  must 
accompany  free  competition.  iv  Believing  that  eco- 
nomic law  is  very  much  the  creature  of  legislation, 
they  freely  recommend  governmental  intervention  to 
assuage  inequalities  of  fortune^  and  social  ills  of  nearly 
all  sorts.  V  They  rebuke  the  inclination  of  the  older 
economists  to  identify  Economics  with  the  mere  pro- 
duction of  wealth,  and  urge  attention  to  questions  of 
distribution  as  even  more  important. 

^  This  name,  Kathedersocialisten,  or  socialists  of  the  [teacher's]  chair, 
was  first  applied  in  derision,  to  ridicule  the  alleged  proposal  of  the  new 
theorists  to  settle  the  social  question  '  by  university  lectures.'  The  move- 
ment originated  in  Schaellle's  Capilalismns  u.  Socialismus,  1870,  Wagner's 
Kede  ueber  die  Sociale  Frage^  1 871,  and  Schoenberg's  treatise  entitled 
Arbeitsaemter.  October  6  and  7,  1S72,  a  convention  was  held  at  Eisenach, 
and  the  next  year  the  Verein  fiir  Socialpoliiik  formed  in  the  interest  of 
the  new  views.  Besides  the  three  writers  named,  Brentano,  Held,  Nasse, 
Schin.oller,  and  von  Scheel,  have  been  prominent  as  socialists  of  the 
chair.  The  men  who  share  this  tendency,  by  no  means  agree  in  details 
or  even  in  all  the  doctrines  which  themselves  consider  important.  See 
next  note. 

-  Some  of  them,  as  Schmoller  and  his  pupils,  go  very  much  farther 
than  Roscher  in  denying  to  EconDiiiios  the  character  of  a  science.  .\  fe\v 
practically  reduce  it  to  the  mere  empirical  knowledge  of  trade  and  industry 


22  INTKODICTION 

[Descriptive  Economics].  Cf.  Wagner,  in  Ouar.  Jour.  Keen.,  vol.  i,  J13 
sqq.,  anil  Xasse,  ibid.,  503  sqq. 

^  There  is  a  cluster  of  subjects,  e.g.,  the  prevention  of  vice,  the  manage- 
ment of  criminals,  sanitation,  divorce,  charity,  no  one  of  which  perhaps  is 
yet  worthy  to  be  regardetl  a  science  by  itself,  and  w  hich  it  is  customary  to 
group  together  as  departments  of  the  general  science  of  sociology.  The 
latter  title  is  also  used  gcnerically,  as  including  several  branches  of  knowl- 
edge recognized  as  sciences,  law,  politics,  and  ethics  among  them.  It  is 
the  habit  to  rank  Economics  with  these  last :  professorial  socialists  incline 
to  place  it  rather  in  the  less  differentiated  class.  They  mock  at  the  assump- 
tion of  an  "  economic  man,"  and  see  danger  in  attempting  to  separate  its 
economic  elements  from  the  rest  of  human  nature  even  for  analysis  and 
study.  Schmoller  makes  a  point  of  distinguishing  between  a  tiatural 
order  in  the  economic  life  [such  as  §  15,  n.  4,  refers  to],  the  reality  of  which 
he  fully  admits,  and  a  moral,  social,  or  psychological  order,  race-customs, 
the  spirit  of  times,  etc. ;  and  he  complains  that  the  Smithians  ignore  this 
realm.  lie  expects  economic  reform  to  come  largely  from  the  building  up 
of  new  customs  and  social  ideas,  more  favorable  to  the  laboring  classes, 
which  shall,  when  necessary,  though  by  no  means  all  of  them,  congeal  into 
laws. 

*  I.e.,  whether  as  downright  selfishness  or  as  a  self-regard  in  accord 
with  general  warfare.  Adam  Smith's  most  famous  followers  were  wont 
considerably  to  overlook  or  belittle  man's  natural  regard  for  his  kind,  and 
their  representations  need  correction  [§  15,  n.  i].  Their  meaning  on  the 
point  has,  however,  been  in  part  misunderstood.  Often  what  they  affirm  is 
not  so  much  man's  selfishness,  whether  in  a  worse  or  in  a  better  sense,  as  it 
is  his  individualism,  his  dependence  for  greatest  efficiency  in  action,  upon 
his  own  rather  than  upon  society's  initiative. 

'  See  §  15. 

''  Here  socialists  of  the  chair  approach  pure  socialism  [next  §].  Wag- 
ner goes  so  far  in  this  direction  as  to  favor  the  public  ownership  of  land  in 
cities,  and  the  use  of  taxation  as  a  means  of  equalizing  wealth.  Schmoller 
[Eittige  Grundfragen,  97]  quotes  with  delight  an  expression  of  Frederic 
the  Great,  to  the  effect  that  taxes  have  among  other  ends  that  in  particular 
"  of  establishing  a  sort  of  equilibrium  between  rich  and  poor." 


INTRODUCTION 


23 


§   14     The  Socialists  Proper 

Schaejfit,  Quintessenz  d.  Socialismus.  Laveleye,  Rae,  and  Ely,  tlie  works  men- 
lion«d  at  §  13.  Kirkiifi,  Inquiry  into  Socialism.  Osgood,  Pol.  .Sci.  Quar.,  vol.  i, 
564  sqq.  Marx,  Cipit.il.  Adler,  Rodbertiis  ;  also  his  Griiudlagen  d.  Mnrx'schen 
Kritik.  Kozak,  Rodbertiis-Jagetzoiv's  Ansichtcn.  Dietzcl,  Karl  Rodbertus. 
Cchn,  133-157.     Dawion,  Cerinnn  Socialism  and  Lassallc. 

These  are  the  most  pronounced  foes  of  Adam  Smith's 
system,  set  especially  against  the  principles  of  private 
property  and  free  competition  in  work  and  trade,  re- 
garding them  the  roots  of  all  social  misery.  Scientific 
socialism  pleads  for  an  economic  regime  wherein  all 
land  and  material  capital  ^  shall  be  public  instead  of 
private  property,  the  .state,  not  the  individual  capitalist, 
being  the  employer  of  laborers,  and  production  and  the 
distribution  of  products  not  left  as  now,  subject  to  specu- 
lation and  to  the  law  of  supply  and  demand,  but  regulated 
justly  and  by  authority,  according  to  the  wants  of  the 
■whole  body  of  consumers,  so  that  no  one  need  be  idle, 
uncared  for,  ignorant  or  poor.  Saint-Simon,  Fourier  and 
Owen  2  had  each  developed  a  kind  of  socialistic  scheme, 
but  Louis  Blanc  was  the  first  "^  to  expound  socialism  as  a 
thorough-going  new  political  order.  Proudhon,  his  con- 
temporary, advanced  the  thesis  that  property  is  theft, 
though  he  subsequently  retracted  this.  But  no  strong 
scientific  grounds  for  socialism  were  presented  till  Rod- 
bertus and  Karl  Marx,  two  able  German  thinkers,  whose 
reasoning  has  commanded  the  attention  of  the  economic 
world.  P'rom  one  of  their  favorite  premises,  Adam 
Smith's  doctrine  of  labor  as  the  sole  source  of  wealth, 
they  argue  that  the  laboring  class  deserves  far  more  than 
it  gets  ;  while  from  another,  viz.,  Ricardo's  '  ir<)u  law  ' 
of  wages,  they  conclude  that  such  injustice  must  iuevi- 


24  INIKODUCTION 


tsi!)ly   foiitiiun'    so   lon<;-  as   the   means    of    production 
remain  in  private  hands.** 


'  Socialists  must  be  distinguished  from  anarchists,  who  b<jlicvc  that 
government,  ns  ciMitrasted  with  administration,  can  and  slirndfl  1)C  abolished, 
and  from  communists,  who  wish  possession  and  enjoyment  in  comuion,  as 
well  as  production.  In  opposition  to  the  anarchist,  the  S(jcialist  propises 
to  continue  some  form  of  real  political  authority;  contrary  to  the  commu- 
nist, he  does  not  expect  or  desire  complete  levelling  in  social  place  or  eco- 
nouiic  condition.  Henry  Cieorge  is  not  a  socialist.  Me  indeed  proposes 
state  ownership  of  land,  but  his  entire  conception  of  the  social  body  and  its 
mode  of  true  growth  is  .Smithian,  at  the  farthest  possible  remove  from  that 
of  socialists. 

-  Saint-Simon,  1 760-1 825,  wished  society  reorganized  into  a  grand  co- 
operative commonwealth,  under  the  masters  of  industrial  science  and  admin- 
istration as  governors;  but  he  gave  only  the  vaguest  hints  how  to  accomplish 
this.  Late  in  life  he  gathered  a  few  brilliant  enthusiasts  into  a  school. 
This  survived  him,  but  perished  in  1832.  Fourier,  1 772-1 837,  and  Owen, 
1 771-1858,  both  devised  schemes  of  cooperating  communities,  numbering 
from  a  few  hundred  to  a  few  thousand  members  apiece,  each  occupying  a 
huge  barrack  [or  '  phalanstery,'  to  use  Fourier's  word],  and  carrying  on 
all  the  necessary  industries  with  the  fullest  aid  of  cooperation  and  improved 
machinery.  Owen  wanted  products  enjoyed  in  common;  Fourier  did  not 
wish  to  abolish  private  property,  but  planned,  after  assuring  a  minimum  to 
the  least  productive  workers,  to  assign  {'.y  of  the  rest  to  labor,  ^'^  to  capital, 
and  /.-,  to  talent.  Owen  and  Fourier,  like  the  anarchists  of  to-day,  hoped 
that  all  humanity  would  adopt  this  organization.  Fourier  started  a  pha- 
lanstery, which  utterly  broke  down.  Owen  began  several  —  one  of  them 
at  Harmony,  Indiana —  with  no  better  success.  The  chief  result  of  these 
ideas  was  great  stimulus  to  cooperation,  of  which  system  l-ouricr  and  Owen 
may  be  styled  the  founders. 

^  Ulanc,  1811-1882,  urged  that  the  slate  should  open  workshops  for  the 
unemployed,  expecting  these  to  succeed  so  well  as  to  raise  the  level  of 
wages  and  gradually  come  to  monopoli/.e  industry.  Hlanc  put  forth  his 
first  great  work,  I' Orgimiuilion  dti  Travail,  in  1840,  and  Froudhon, 
1809-18O5,  uttered  his  famous  words,  la  propriet!-  c'est  le  vol,  in  the  same 
year.  This  th<iught  was  not  original  with  Proudhon,  but  had  l^een 
advanced  long  before  by  I'.rissot  de  Warville,  the  Clirondist  leader  in 
the   French  Revolution.      Proudhon  was  however  the  first  to  proclaim  the 


INTRODUCTION  25 

feasibility  of  just  distribution  by  means  of  "  labor-time  "  wages  and  prices, 
ideas  which  Marx  borrowed  from  him. 

■•  Marx,  1818-18S3:  Kodbertus,  1805-1875.  Partly  their  [ircinises, 
taken  from  Siiiilli  and  Ricardo,  are  unsound;  partly  they  reason  from 
them  illo<,'icaliy.  Full  discussion  falls  under  Distribution,  but  see  §§  15,  37. 
Ricardo's  '  iron  law,'  as  interpreted  by  the  socialists,  is  to  the  effect  that 
by  the  present  economic  order  all  wages  necessarily  tend  to  the  starvation 
level. 

§   15     OnK  View 

Newcomh,  Princeton  Rev.,  Nov.,  1884.    Moltnari,  Les  Lois  naturelles  de  recon.pol. 
Sidgwick,  Principles.     Lunt,  as  at  §  11. 

The  Historical  Soliool  merits  thanks  for  insisting 
on  what,  though  well  known,  is  rarely  felt  in  proper 
force,  that  Economics,  when  applied,  becomes  a  mere 
science  of  tendencies,  and  that  no  one  of  its  specific 
laws  can  safely  be  pronounced  operative  in  any  concrete 
case  without  fullest  study  of  local  and  temporal  condi- 
tion.s.  It  has  refuted  the  old  notions  of  human  nature 
and  social  institutions  as  fixed  creations,  and  shown 
society  to  be  an  organism,  subject  to  evolution^  no 
less  than  are  the  other  realms  of  biology ;  thus  inci- 
dentally revealing,  further,  how  meagre  must  be  a  sys- 
tem of  economic  truths  valid  for  all  ages  and  peoples. 
To  the  Socialists,  whether  partial  or  complete,  be  it 
granted  that  (a)  laissez  fairc'^  is  no  absolute  principle, 
(b)  its  application  has  nowhere  brought  social  mil- 
lennium,''^ (c)  existence  of  thorough  natural  harmony 
in  interests  between  different  social  classes  is  not 
proved,'*  (d)  government  can  do  miicli  for  the  better- 
ment of  economic  conditions  without  attacking  the 
property  right  or  becoming  dangerously  paternal,  (e) 
within  these  limits  it  should  labor  in  this  direction  to 


-'O  INTRODUCTION 

the  Utmost,  (f)  with  increase  of  morality  and  intelli- 
gence, its  sphere  may  in  this  respect  possihly  he  en- 
lars^ed.  Yet  we  maintain  that  :  i  Certain  general  laws  of 
absolute  and  universal  vali<lity  and  no  less  'natural' 
than  thoso  t>f  jdiysics,  underlie  the  science  of  Eco- 
nomics, viz.,  tlu)se  laws  of  the  physical  world  and  of 
man's  constitution  which  determine  man's  temporal 
weal.^  ii  In  all  economic  activity  the  presumption 
is  in  favor  of  individual  liberty  and  free  competition 
[laissez  faire],  rightfulness  of  public  intervention  in 
no  case  admissible  save  after  proof. *" 

'  Society  an  organism  (i),  subject  to  evolution  (ii^ — these  are  the 
main  insiglits  for  which  we  are  indebted  to  the  aposteriorists.  The  ncmi 
nalistic,  individuahstic  idea  of  society,  making  it  a  mere  chance  aggrega- 
tion of  individuals,  must  be  surrendered.  Society  as  such  and  by  itself 
has  aims,  tendencies,  a  life  entire,  which  are  more  than  generalizations 
from  the  experiences  of  John,  Richard,  and  Peter.  With  this  better  view 
of  man  as  member  of  a  social  cosmos  has  naturally  come  a  sounder 
ethics.  Self-regard  is  seen  not  to  be  the  whole  duty  of  a  moral  agent 
[§  13,  n.  4].  Neither  is  the  self-seeking  of  A,  D,  and  C  that  sure  way 
to  the  general  good  which  Bastiat  thought  it  [§  13,  iii],  except  in  the 
sense  that  one  best  serves  self  by  devotion  to  others.  The  second  trutii, 
social  evolution,  must  also  Ije  recognized.  Human  nature,  unless  the 
notion  be  made  ridiculously  meagre,  is  not  the  same  in  ilifferent  genera- 
tions Lut  changes  from  age  to  age.  On  the  whole  matter  of  this  note,  cf. 
Ward,  Dynamic  Sociology. 

-  This  maxim,  never  authoritatively  defined,  has  been  used  with  great 
latitude  of  meaning.  See  Claniier,  "  Laissez  laire,"  in  Lalor.  English 
writers  have  meant  less  by  it  than  French.  Sidgwick,  Principles,  22. 
As  usually  applied  it  has  signified  that  government  should  restrict  its 
agency  to  the  protecticjn  of  men  in  their  "  natural  riij^lits,"  to  life,  liberty, 
and  property.  But  no  government  has  ever  yet  been  able  to  proceed  upon 
so  narrow  lines.  Nor  ought  governments  to  attem])t  this.  If  legislation  is 
often  a  hindrance  economically,  it  may  be  also  a  gre.it,  even  an  indispen- 
sable help.  Its  w..rk  in  patlivrin;,'  s!ntis:ics  is  invaluable.  So  r.re  its  coast 
and  other  sutveys  and  its  meteorological  reports,     l-orests,  fisheries,  and 


INTRODUCTION  27 

ocean  and  river  dikes,  to  cire  a  few  obvious  cases,  government  alone  can 
supervise  in  accord  with  the  economic  interest  of  all.  l"or  other  benefits 
from  the  state's  positive  intervention,  see  Shaw-Lefevre,  opening  Addr. 
bef.  the  British  Social  Science  Cong.,  Birmingham,  Sept.  17,  1884  [in 
ans.  to  II.  Spencer's  Man  and  the  State].  Cf.  Mill,  bk.  v,  ch.  i,  and 
Schmoller,  Grundfrageii,  95. 

^  In  England,  e.g.,  where  industrial  freedom  is  most  complete,  but 
poverty  still  dire  and  stubborn. 

■*  More  nearly  is  it  disproved.  Tlie  immediate  interests  of  different 
men  and  classes  certainly  clash  continually.  The  permanent  good  of  indi- 
vidual or  class  is  surer  to  accord  with  that  of  society;  though  it  by  no 
means  always  does  so,  unless  a  higher  than  economic  good  is  meant,  or 
"  permanent  "  taken  as  reaching  beyond  time.  Thus,  riches  are  acquired 
in  the  liquor  trade,  in  gambling,  and  by  selling  obscene  literature  and  pic- 
tures—  businesses  which  curse  humanity  [§§  18,  n.  5,  21,  n.  7]. 

^  See  Cohn,  69-7S,  and  Senior,  Pol.  Kcon..  26-81.  That  men  must 
eat  to  live,  and  work  in  order  to  eat,  that  they  prefer  pleasure  to  pain, 
and  seek  to  attain  their  ends  [whether  selfish  or  unselfish]  by  the  least 
onerous  processes,  are  specimens  of  such  laws.  The  tendency  of  popula- 
tion to  outrun  subsistence  [Malthusianism]  is  another.  De  Molinari's  law 
that  the  price  of  a  commodity  falls  or  rises  in  a  geometrical  ratio  as 
its  amount  increases  or  diminishes  in  an  arithmetical,  may  be  cited  as  still 
another  example,  valid  universally  so  soon  as  exchange  begins,  though  in 
a  less  definite  way  than  his  presentation  would  imply.  We  name,  too,  the 
law  by  which  the  precious  metals  distribute  themselves.  If  they  are  pecu- 
liarly plenty  high  prices  [of  other  things]  prevail  and  the  money  flows  off 
to  effect  purchases  at  remote  centres.  If  they  are  scarce  the  counter  phe- 
nomena have  place.  The  law  of  diminishing  returns,  however  checkeil 
here  and  there,  is  as  universal  as  the  industries,  agriculture  and  mining,  to 
which  it  relates.  Knies's  scruple  [Pol.  Oek.,  356],  to  call  some  of  these 
'  natural '  laws,  on  the  ground  that  they  do  not  relate  to  "  things  corc>oreal 
and  subject  to  sense-perception  "  seems  fanciful.  Whatever  objection  may 
lie  against  regarding  as  '  natiaal '  the  [nirposive  movements  of  society,  the 
unconscious  j^lay  of  psychical  and  social  forces  may  assuredly  be  so  styled. 
The  idea  of  a  world's  text-book  on  Economics  is  therefore  not  absurd, 
though  the  principles  which  such  a  work  could  lay  down  would  be  few 
and  general.     Cairnes,  Logical  Meth.,  i. 

^  Sidgwick,  Principles,  ]).  22;  Mill,  Ijk.  v.  ch.  xi,  7;  Schmoller,  Griind- 
fragen,  47.  Notice  that  the  maxim  is  not  announced  as  certainly  valid  fot 
all  past  or  possible  states  of  society. 


28  introduction 

§  1 6  Value  of  the  Study 

Laugkh'tt,  The  Study  of  P.  E.  Ciimmiiig,  Value  of  P.  E.  :o  Mankind,  Cobden  Club 
Prize  Ess.  for  1880.  Roscher,  Prelim.  Ess.  to  English  Tr.  Cossa,  23.  Buckle, 
Hist,  of  Civilization  in  Eng.,  vol.  i,  150  sqq.     Tenne.mann,  Cesch.  d.  Philos.,  1,  30. 

In  fitness  for  place  in  an  educational  curriculum,^ 
Economics  perhaps  surpasses  all  other  studies,  through 
the  remarkable  combination  which  it  involves  of  mental 
discipline  with  practical  utility.-  Each  of  its  proposi- 
tions requires  careful  thought,  while  certain  of  its  rea- 
sonings challenge  the  hig-liest  powers  of  mind.-^  On  the 
other  hand,  though  it  is  a  science,  not  an  art,'*  its  truths 
touch  every  human  life.  Among  a  great  deal  else  of 
obvious  importance  which  acquaintance  with  Economics 
incidentally  makes  clear,  may  be  mentioned  :  (i)  the  fal- 
lacy of  many  prevalent  notions  about  wealth,^  (ii)  the 
failure  and  even  positive  cruelty  of  much  intended 
charity,^  (iii)  the  sure  and  widespread  effects  of  Avaste,' 
(iv)  the  inevitable  interdependence  of  individuals, 
classes,  and  nations,  and  (v)  striking  evidence  of  in- 
telligence and  beneficent  law  as  reigning  in  the  uni- 
verse. A  time  comes  in  the  history  of  every  cultivated 
people,  when  social  comfort,  to  say  nothing  of  social 
progress,  depends  absolutely  upon  knowledge  of  eco- 
nomic principles.  Europe  is  at  this  point  already  ;  we 
shall  soon  be. 

1  Whether  mors  liberal  ox  more  practical.  It  is  perverse  to  limit  science 
to  exact  science  [§  4,  n.  l].  Equally  so  to  suppose  the  best  education 
attainable  by  drill  in  the  exact  sciences  alone.  That  is  important  but  often 
carried  relatively  too  far.  Not  only  do  action,  conduct,  life,  all  lie  in  the 
domain  of  inexact  science,  making  training  in  this  indispensable  to  every 
educated  person,  but  even  looking  from  the  point  ol  view  of  an  exclusively 
liberal  education,  it  is  a  higher  attainment,  a  finer  feat  of  mind,  to  be 
expert  in  the  inexact  than  in  the  exact  sciences. 


INTRODUCTION' 


29 


-  The  advantage  of  tl.is,  considering  the  study  as  a  liranch  of  lil)eral 
culture,  lies  in  the  zest  it  imparts.  It  is  a  help,  too,  that  the  pupil  is  surt 
to  possess  beforehand  a  certain  familiarity  with  the  subjects  to  be  consid- 
ered. This,  however,  in  spite  of  the  best  instruction,  sometimes  Ijreeds 
slovenly  analysis  and  looseness  of  view.  A  kindred  ilifliculty  arises  from 
the  use  in  l-.conomics  of  many  ordinary  words  in  a  technical  sense.  Stu- 
dents suppose  themselves  thinking  the  correct  thought  because  they 
attach  a  more  or  less  definite  meaning  to  the  word.  From  the  same  cause 
is  also  most  of  the  economic  sciolism  so  common  among  persons  not  stu- 
dents at  all,  who  yet  discuss  rent,  profits,  wages  and  whatever  other  topic 
is  named  by  a  familiar  title,  w  ith  all  the  assurance  of  an  Adam  Smith. 

2  As  those  upon  money  and  foreign  exchange.  Not  here  alone  but 
throughout  the  science  the  data  have  a  peculiar  mutual  relativity  which 
renders  them  elusive.  The  irov  o-tw  is  for  many  an  argument  difficult  to 
fix.  Premises  can  often  be  made  definite  only  by  a  piece  of  abstraction 
which  the  course  of  reasoning  shows  to  have  been  incorrect.  We  have 
then  to  amend  them  and  rethink  our  work  with  scrutiny  to  see  whether, 
and  if  so  where  and  how  far,  the  change  has  vitiated  it.  No  other  sort  of 
exercise  will  test  and  develop  the  mind  like  this. 

*  As  Adam  Smith,  in  the  main,  conceived  it.  We  investigate  its  facts  not 
primarily  to  use  them,  but  to  know  them  \'et  their  character  lends  a 
special  interest  to  the  work.  Here  at  least  it  is  not  true,  if  it  is  or  ever 
has  been  anywhere,  that  science  cares,  in  the  strictest  sense,  only  for  truth, 
regardless  of  truth's  worth  in  life. 

^  In  reference  to  its  nature  [§  i,  n.  3],  and  its  importance  to  happiness 
and  civilization.  How  many  consider  wars,  fires,  and  floods  as  blessings 
because  they  '  make  work.'  Cf.  n.  7,  belgw.  Read  Bastiat's  bright  essay 
[(Euvres,  vol.  v,  336  sqq.]  on  That  which  is  Seen  and  that  which  is  Unseen. 
A  writer  in  the  Pop.  Sci.  Monthly  for  1S85,  estimated  the  loss  by  fire  in 
United  States  during  1S84,  at  $160,000,000. 

"  Mill,  bk.  ii,  chaps,  xii,  xiii.  By  misplaced  alms,  not  only  is  wealth 
wasted  which  might  have  supported  honest  productive  labor,  whose  product 
might  in  turn  have  gone  to  support  labor  in  further  production  still,  and  sc 
on  indefinitely;   but  a  vicious,  lazy  habit  is  engendered  in  the  object. 

'  Could  we  ]irevent  the  waste  from  uneconomic  housekeeping  alone, 
the  fund  resulting  would  far  more  than  suffice  to  feed  all  the  hungry. 
"  Whoever  can  teach  the  masses  of  the  people  how  to  get  five  cents'  worth 
a  day  more  comfort  or  force  out  of  the  food  which  each  one  consumes, 
will  add  to  their  productive  power  what  would  equal  a  thousand  million 
dollars  a  year."     See  §  49. 


30  INTKonUCTION 

v^     i;         lllK     l)l\-ISION    OF    I^XT)\()MHS 
Cpssa,  pi.  i,  ch.  ii.     Garnier,  '/'raite,  18-20. 

Our  science  i.s  most  common]}  presented  under  the 
four  general  heads  of  I'roduction,  Exchange,  Distribu- 
tion, and  Consumption.^  This  arrangement  is  illogical, 
since  all  Exchange  and  an  important  part  of  Consump- 
tion are  branches  of  Production.  As,  however,  Produc- 
tion, exhibited  so  in  its  strict  integrity,  forms  a  most 
bulky  topic,  overshadowing  the  others  and  giving  to  the 
parts  of  the  discussion  a  very  unequal  size,  we  may  con- 
sult convenience  along  with  logic,  and  lay  out  our 
matter  as  follows  :  Part  I,  Production,  except  as  involv- 
ing Exchange.  Part  II,  Excliaiige,  except  as  involving 
Money.  Part  III,  Money.  Part  IV,  I>istribution. 
Part  V,  Consumption.  Part  VI,  Practical  Topics 
touching  upon   ICconomic  Theory. 

'  So  Wayland,  F.  A.  Walker,  Mangoldt  and  Garnier,  exactly,  also  most 
other  French  writers  [Leroy-P.eaulieu,  Levasseur],  only  placing  Distribution 
before  Exchange  \^circula/ion'].  Roscher,  too,  has  the  order  given  in  the 
text,  save  that  he  injects  after  Production  as  coordinate  with  the  other 
four,  a  Part  [ii]  on  Freedom  and  Property.  Chapin's  Wayland  strangely 
alters  the  order  to  Production,  Consumption,  Distribution,  and  Exchange. 
^^Culloch,  Principles  of  Pol.  Econ.,  is  exactly  logical  :  Production,  Distri- 
bution, Consumption.  Mill  and  Fawcett  both  say  Production,  Distriljution, 
Exchange.  Laughlin  and  H.  C.  Adams  have  these  same  topics,  but  reverse 
the  order  of  the  last  two.  Senior  divides  into  the  Nature,  Production  and 
Distribution  of  Wealth.  Cherbuliez  has  Product'.Dn,  Circulation,  Distribu- 
tion, treating  (.'unsuniption  as  sub-topic  of  Production.  Except  in  the  last 
point  Held  agrees  with  him  \^ProJuction,  I'erkehr,  Vertheilitug'\.  Quite 
original  is  Cohn's  marshalling,  into  the  Elements,  the  Foriii-laking  \_Ges/al- 
luvg],  and  the  Processes,  of  the  Economic  Eife.  With  a  similar  motive,  to 
emphasize  the  dynamic  aspect  of  the  science,  F.  H.  Giddings  suggests 
treating  it  under  the  rubrics  of  Descriptive  Economics,  and  Economic 
Physics,  Politics,  Biology,  Psychology,  and  Evolution.  The  purpose  is  a 
good  one,  Vjut  can,  we  believe,  be  carried  out  as  logically,  and,  for  the  pur- 
poses of  a  treatise  like  the  present,  more  profitably,  by  handling  the  mate 
rial  as  the  text  proposes. 


Part   I 


PRODUCTION 

EXCEPr  AS   INVOLVING   EXCHANGE 

^oJO^oo 


CHAPTER    T 

the  nature  of  production 

§  1 8     Various  Views  of  Productivity 

Roscher,%^  i,%-^i.    ^V/V/,  bk.  i,  ch.  iii,  §  3;  ^jmj' iii  on  Unsettled  Questions.    Gamier^ 
Traiie,  ch.  ii.     Ad.  Smith,  bk.  ii,  ch.  iii. 

The  mercantilists  regarded  industry  productive  only 
in  proportion  as  it  tended  to  swell  the  nation's  stock  of 
money.  They  deemed  manufactures  more  productive 
than  agriculture,  their  finer  forms  more  than  the  coarser, 
active^  and  direct  commerce  more  than  passive  and  indi- 
rect. The  pliysiocrats  identified  productive  toil  with 
the  extraction  of  useful  raw  material,  stigmatizing 
other  occupations^  as  'sterile,*  because  sustained  only  by 
overplus  gained  through  work  upon  the  land.  Adam 
Smith  and  Mill  styled  unproductive  all  exertion,  how- 
ever useful,  not  taking  form  in  some  useful  material 
>l>ject,  placing  in  the  unproductive  list  in  fact  more  call- 
ings ^  than  their  own  definition  required.  Their  classifi- 
cation has  been  followed  by  most  writers  of  the  Enjflish 
School.      Not  bv  the  French,^  who,  even  when  discioles-' 


^2  THE    NATURE    OF    PRODUCTION 

of  Adam  Smith,  have  usually  reckoned  as  productive  all 
labor  imoarting:  economic  modifications  to  the  iniiiiate- 
rial  nature  of  man.  Kosclier  goes  further  still,  and  de- 
fines every  sort  of  activity  as  productive  which  society 
is  willing  to  pay  for.'J  This  is  now  the  prevalent 
doctrine. 

^  Cf.  §  7.  "Active"  commerce  =  preponderance  of  export  =  favorable 
balance  of  trade :  "  passive  "  —  preponderance  of  import  —  unfavorable 
balance  of  trade  [Roscher,  §  48]. 

-  Cf.  §  9.  They  believed  manufacturing  to  do  nothing  l)ut  change  the 
firm  of  things,  whatever  value  it  added  being  just  the  sum  of  the  raw  ma- 
terials consumed  by  the  laborers  in  the  process  of  manufacture.  Quesnay 
indeed  saw  that  not  all  the  new  worth  added  by  manufacturing  could  be  so  ex- 
plained, l)ut  considered  the  rest  the  outcome  of  natural  or  legal  monopoly. 
Trade  too  the  physiocrats  thought  "  sterile,"  merely  passing  wealth  from 
one  hand  into  tiie  other.  What  merchants  won  was  at  cost  of  the  nation. 
On  all  this,  and  the  easy  refutation  of  it,  Roscher,  §  49,  and  n.  2.  These 
men  supposed,  as  did  si  clear  a  head  as  Locke,  that  what  one  party  to 
a  trade  gained  the  other  must  lose  —  a  perfectly  patent  error  [§  20,  n.  4]. 
Boisguillebert  made  clear  the  productiveness  of  exchange,  by  supposing 
three  men  bound  to  stakes  one  hundred  paces  apart,  the  first  with  a  stock 
of  victuals  but  naked,  the  second  with  a  huge  pile  of  fuel  but  no  food,  the 
thirrl  with  a  superfluity  of  clothing  but  no  supply  besides.  Could  they  ex- 
change, all  three  would  be  happy :    as  they  cannot,  all  die. 

8  Not  only  the  frivolous  occupations  of  opera-singers  and  ballet-dancers, 
but  the  important  ones  of  statesmen,  judges,  clergy,  physicians,  army  and 
navy.  I.e.,  violin-miking  productive,  but  violin-playing  not,  though  the 
sole  end  in  making  the  violin  is  that  it  may  be  played  [Gamier]  !  Train- 
ing of  swine  productive,  educating  men  unproductive  [List]  !  The  churl 
who  scares  crows  from  cornliclds  productive,  soldiers  who  bar  out  invad- 
ing armies  unproductive  [M'CuUuchJ  !  Roscher,  who  cites  the  objec- 
tions just  given,  notes  that  the  Smithians  have  to  own  certain  industries  as 
productive  though  affecting  material  objectsonly  indirectly,  and  that  govern- 
ment officers,  physicians  and  the  like,  certainly  contribute  at  least  indirectly 
to  much  material  production. 

♦  J.  B.  Say,  Dunoyer,  (.arnier,  Sismondi.  The  last  speaks  of  govern- 
ment and  army  as  "guardians,  who  produce  security"  [Carnier,  p.  34]. 
Bastiat  went  so  far  as  in  effect  to  make  all  production  immaterial,  calling 


TFIE    NATURE    OF    PRODUCTION  33 

commudities  a  form  of  services.     J.  B.  Clark   [Pliilos.  of  Woaltli,  ch.  ij 
precisely  reverses  this,  interpreting  the  essence  of  a  service  to  be  always  o( 
a  material  nature.     The  wealth  which  the  orat<jr  produces  in  speaking,  or 
\.\\c  prima  donna  in  singing,  consists  in  the  exhaled  air  vibrating  so  and  so, 
etc. 

*  See  his  §  52.  "  Every  business  whose  service  is  rationally  sought  for 
and  duly  paid  for.''  I5y  inserting  "  rationally  "  he  would  hint  at  the  mal- 
productiveness  of  lucrative  trades  which  curse  mankind.  In  1853  there 
were  said  to  be  in  France  3500  colportcuis  of  immoral  literature  and  pic- 
tures, selling  yearly  nine  million  copies  and  getting  for  them  six  million 
francs  [$1,200,000].  Such  businesses  are  formally  rather  than  really  pro- 
ductive. "No  rational  labor  is  unproductive"  [Garnier].  "The  union 
of  the  word  labor  with  the  word  unproductive  is  nonsense"  [Rossi].  "The 
only  labor  that  is  really  unproductive  is  that  which  fails  to  attain  its  pur- 
pose" [II.  C.  Adams]. 

^  19    Wkai/fh-Increment  which  is  not  Production 

Mangoldt,  Gruiidriss  d.  Volksivirtschaftslehre ,  §§  12-15. 

While  the  classes  of  entities  making  up  wealth  come 
by  man's  deliberate  exertion,  certain  contributions  to 
wealth  are  frec.^  Such  may  spring  from  :  i  Changes  in 
the  objects  of  wealth,  as  gratuitous  abundance  at  har- 
vest owing  to  propitious  weather,  or  advance  in  landed 
or  other  wealth  by  the  natural  growth  of  a  commu- 
nity.2  ii  Changes  in  the  subjects  ^  of  wealth,  as  the 
increase  of  their  needs  in  compass,  kind  or  intensity, 
larger  knowledge  of  the  means  for  supplying  them,  or 
fuller  power  to  utilize  these  means,  iii  Changes  of  re- 
lation between  the  subjects  and  the  objects  of  wealth, 
as  by  better  laws  or  government,^  or  jDrogress  of  the 
community  in  morality. 

'  §  I,  n.  2.  This  truth  socialists  ignore,  a  defect  which  vitiates  Marx's 
"Capital"  almost  entirely.  While  wealth,  speaking  generally,  originates 
in  lalior,  the  amount  of  wealth  in  a  thing  is  usually  a  very  inexact  measure 
of  the  labor  bestowed  on  it. 


34  THE    NATL'KK    OK    rKODUCTlON 

-  Tlie  two  cases  are  unlike.  When  a  generous  rain  adds  a  million  bushels 
to  tlie  wheat-yield  for  the  year,  no  part  of  the  gain  is  due  to  luuuan  agency. 
Rise  in  the  amount  of  wealth  embodied  in  its  land  and  buildings  by  the 
growth  of  a  city  is  a  result  of  what  men  have  done,  yet  one  not  consciously 
purposed.  It  therefore  does  not  fall  under  our  definition  of  wealth  [§  i]. 
In  speaking  of  land  value  here  we  make  no  reference  to  the  original  prop- 
erties of  land,  or  to  mere  place,  both  of  couise  gratuities  and  therefore 
conditions  of  wealth  rather  than  wealth;  but  to  improvements  upon  land. 
Obviously  unearned  increment  may  attach  to  these  as  well  as  to  the  un- 
created, primordial  qualities..  It  is  natural  to  call  the  increment  in  the  one 
case  wealth,  since  it  is  an  addition  to  wealth,  and  in  the  other  for  an  anal- 
ogous reason,  condition  of  wealth. 

'  See  Mangoldt,  §  14.  Human  beings  are  of  course  meant.  With  ad- 
vance of  culture  man  experiences  ever  new  need  and  comes  upon  ever 
new  objects  for  its  satisfaction,  —  both,  in  numberless  cases,  as  in  many 
inventions  and  discoveries,  accidentally,  without  any  purposive  action  of  his 
own.  The  benign  outcome  of  such  new  knowledge  has  sometimes  very  \vide 
sweep.  The  discovery  of  S})inning  and  weaving  must  have  greatly  enhanced 
the  value  of  sheep,  wool,  and  all  fibre-producing  plants.  As  acquaintance 
with  the  earth  and  its  products  increases,  insiglit  into  the  useful  properties 
of  things  and  into  \\ays  for  using  them  becomes  increasingly  a  matter  of 
study,  so  that  discoveries  occur  more  from  purpose.  Then  the  search,  if 
successful,  is  genuine  production. 

^  Making  o:(.inership  a  surer  thing.  But  so  far  as  the  betterment  in  law 
or  administration  proceeds  from  economic  motive,  more  and  more  the  case 
as  governments  grow  better,  the  generation  of  new  value  thereby  is  out 
and  out  production. 

§  20     Production 

/V(»;/^r^(//>«,  Wealth-Creation.   Nosc/ter,  §  50.     Afang-olJi,  as  al  §  li.   /I//?/,  bk.  i,  ch.  i. 

Production  con.sist.s  not  in  tlie  <Toation  of  new 
material,  a  deed  beyond  finite  power,  but  in  the  origi- 
nation by  conscious  human  act,^  of  wealth  or  of  direct 
gratifications  such  as  commonly  proceed  from  wealth. 
We  originate  wealth  by  so  sliapiiij?,  coinbiniiifjr  or 
Iilariii^  given  elements  or  forces  of  the  universe  (  r  of 
man's  nature  as  to  bring  forth,  impart  or  increase  util- 


THE    NATURE    Ol"    lM<ODL'CTION  35 

ity.  Iiuiitatcrial  wealth  is  produced  by  the  develop- 
ment or  trainiiifj^  of  intellectual  power,  skill,  sleight,  or 
habit,  or  by  putting  human  beings  into  new  relation.s  ^ 
one  to  another.  Material  wealth  is  produced,  (i)  by 
'occupyingr'^  spontaneous  natural  elements  or  prod- 
ucts, (ii)  by  extracting  minerals  from  the  earth,  (iii)  by 
j^rrowing  vegetable  or  animal  products  through  use  of 
nature's  forces,  (iv)  by  transporting  things  from  place 
to  place,  (v)  by  changing-  their  mechanical  or  chemical 
forms,^  or  (vi)  by  exchanging  them  between  different 
owners.*  All  prevention  of  decrease  or  destruction,  in 
wealth  may  be  called  negative  production.'^ 

•  See  §  1,  and  its  ii.  3.  "Relations"  here  means  not  only  those  re- 
ferred to  by  this  word  in  §  i,  but  also  the  "  influences  "  had  in  mind  there; 
tliese  last  too  being  relations,  though  of  a  peculiar  kind.  On  relations  as 
wealth,  see  the  art.  "  Copyright,"  in  Lalor. 

-  Appropriating,  that  is.  For  this  nice  sense  of  occiipare  see  §  3,  n.  3. 
Hunting,  trapping,  gathering  wild  fruits,  and  the  like,  taking  water  gratis 
from  springs  or  streams  and  purveying  it  to  people  in  towns  at  a  price, 
would  illustrate. 

8  Mechanical,  cloth-making;  chemical,  soap-making.  The  pupil  can 
multiply  examples. 

■*  One  man  owns  a  dray-horse  but  needs  a  roadster;  another  needs  a 
dray-horse  but  owns  a  roadster.  They  exchange  and  both  are  richer.  So 
is  the  world.  This  and  the  case  of  production  by  transportation  excellently 
bring  out  the  essential  idea.  Roscher  refers  to  the  ice  trade  between  Boston 
and  the  W.  Indies.  So  early  as  1843  55,000  tons  were  sent.  Uncut  it  cost 
25  cents  a  ton,  packed  in  the  ship,  $2. 55,  and  brought  at  destination  over 
S65  a  ton,  an  advance  of  more  than  $3,561,250, — almost  entirely  due  to 
transportation  alone.  Carloads  upon  carloads  of  hides  go  from  X.  \ .  city 
to  Chattanooga  to  be  tanned  and  returned  as  leather.  In  the  latter  case 
travel  is  not  the  cause  of  the  added  value  but  the  condition,  it  being  neces- 
sary  in  order  to  utilize  the  excellent  tanning  properties  of  the  chestnut  burr 
oak  of  Tennessee  [.Atkinson]. 

^  No  inconsiderable  i)art  of  the  work  of  cleigy,  judj^es,  army  and  police. 
Legitimate  speculation  falls  here  [§  21,  n.  7.     Cf.  Mangoldt,  §  37].     Pro- 


56  THE    NATURE    OF    PRODUCTION 

duction  is  not  negative  simply  because  [like  washing  clothes]  it  begets  no 
new  thing  or  form,  or  because  it  simply  does  away  with  obstacles.  In  this 
last,  strictly,  all  production  consists  [Cannan,  Elementary  P.  E.,  7,  8j. 


§  21     Special  Remarks  on  Production 

Roichtr,  §  50.     Gamier,  ch.  ii.     Cannan,  Elementary  P.  E.,  pp.  9  sq.     Clark,  Philos. 
of  V/ealth,  ch.  i.    Mangoldt,  §  26. 

i  The  dig-nity  of  production  is  not  determined  by 
cither  the  duration,^  or  the  dispensableness^  of  the  prod- 
uct, but  by  its  total  and  final  effect  upon  the  nature  of 
nian.^  ii  The  real  product  in  activities  like  oratory, 
music,  and  teaching  is  either  a  temporary  gratification 
or  a  more  or  less  permanent  addition  to  immaterial 
wealth,'*  the  tones  and  words  being  instrumental  only, 
iii  'Directly  and  indirectly  productive'  is  a  purely 
relative  distinction,  as  every  productive  process  has  the 
one  or  the  other  phase  according  to  your  point  of  view. 
The  policeman  produces  security  directly,  the  hatter 
hats  ;  while  each's  work  indirectly  helps  into  existence 
the  other's  product.  So  in  all  cases.'"^  iv  Distinguish 
i)  teclinical  or  formal  production,  which  neither  in- 
creases nor  diminishes  wealth  whether  general  or  pri- 
vate,^ 2)  production  which  adds  to  private  wealth  only 
and  perhaps  detracts  from  general,"  and  3)  that  which  at 
first  and  visibly  swells  general  wealth  alone,  advancing 
individuals'  possessions  merely  in  the  ways  all  public 
benefits^  do.  v  Inasmuch  as  national  and  cosmic  wealth, 
like  private  and  general,  are  partially  susceptible  of  an- 
tagonism, 'we  should  denominate  as  ab.solutely  pro- 
ductive only  such  industries  as  promote  the  wealth  of 
niiinkind.' '*  vi  There  can  lie  no  such  thing  as  general 
overproduction,  viz.,  an  all-round  glut  of  products,  be- 


THE    NATURE    OF    PRODUCTION  37 

cause  the  desires  of  men,  intrinsieally  satisfiable  eco- 
nomically, are  unlimited  in  number,  indefinite  in  degree, 
and  forever  increasing.^*^ 

1  Bread  may  last  two  days,  lace  two  centuries,  yet  liread-making  is,  i{ 
we  distinguish  at  all,  the  higher  service.  Roscher  observes  that  labor 
upon  persons  and  relations,  though  in  compass  and  duration  less  mensur- 
able than  other,  is  apt  to  rank  higliest  in  power  to  multiply  and  propagate 
itself. 

2  We  could  get  along  without  music  or  works  of  art  better  than  without 
cloth,  but  real  civilization  demands  both.  Roscher  justly  rci)ukes  the 
habit  of  regarding  any  general  department  of  industry  more  honorable  than 
another  on  this  score.  Agriculture  gives  us  tobacco,  from  manufacture 
come  playing-cards,  from  commerce  rum,  while  "  among  services  belong  the 
indispensable  ones  of  educator  and  judge,  as  well  as  the  dispensable  ones  of 
rope-dancer  and  bear-exhibitor."     Cf.  Knies,  Dienstleislungen  d.  SoldaUn. 

^  Often  to  be  ascertained  only  by  extra-economic  inquiry,  in  .esthetics 
and  ethics. 

••In  agreement  with  Gamier  and  Dunoyer,  and  against  J.  B.  Say,  who  con- 
sidered [in  case  of  a  teacher]  the  lecture  the  product.  For  Clark's  notion, 
see  §  i8,  n.4.  lie  will  not  term  any  property  of  man  economic  product 
[wealth],  lest  we  confound  wealth-creating  abilities  with  the  product  re- 
sulting from  the  exercise  of  them.  But  no  confusion  need  arise  by  naming 
both  wealth,  any  more  than  by  applying  this  term  to  a  machine,  which  is 
at  once  wealth  and  wealth-producer  [capital].  Exactly  how  we  define 
here  is  however  not  a  vital   point. 

^  Thus  a  wagon  is  now  used  for  pleasure,  again  to  transport  goods,  and 
3  meadow  serves  partly  for  beauty,  partly  to  grow  grass. 

^  Making  things  which  do  no  one  any  good. 

"  Like  the  business  specified  at  §  18,  n.  5.  Cf.  above,  n.  3.  To  this 
add  the  general  manufacture  and  sale  o{  liquorr.,  very  profitable  trades  to 
most  engaged  in  them,  99  per  cent  of  whose  effect,  however,  is  a  palpa- 
ble impoverishment  to  the  community,  i)  withdrawing  capital  and  labor 
from  admittedly  productive  channels,  ii)  diminishing  men's  productiveness, 
partly  day  by  day,  partly  by  shortening  life,  iii)  vastly  increasing  public 
expenses  by  multiplying  paupers  and  criminals,  iv)  breaking  down  char- 
acters and  swelling  the  misery  of  human  life.  This  is  not  denouncmg  tne 
existence  of  intoxicants  or  declaring  the  use  of  them  never  justifiable. 
Gambling  at  best  ministers  only  to  private  wealth.  Every  cent  which  .\ 
gains,  C(  nies  from   B  or  C     Worse  than  this,  the  habit  breeds  a  temper 


434461 


38  THE   NATURE    OF    PRODUCTION 

most  deleterious  to  thrift  and  industry.  Gambling  in  stocks,  wheat,  cotton, 
etc.,  is  precisely  as  condemnable  economically  as  faro  or  bluff.  Not  so 
speculation  with  genuine  intention  to  transfer  the  goods.  This  tends  to 
steady  prices  and  hence  is  negatively  productive  [§  20,  end].  Betting  on 
futures,  which  a  vast  amount  of  speculation  in  the  various  exchanges  essen- 
tially is,  does  not  have  this  tendency  but  just  the  reverse. 

*  Many,  not  to  say  most,  new  railroads  have  caused  loss  to  their  first 
owners;  few  if  any  of  them  have  failed  to  benefit  their  localities.  Good 
public  works  require  taxes,  but  more  than  repay  these,  being  a  blessing  to 
every  citizen,  whether  enhancing  the  selling  value  of  estates  [the  usual 
result]  or  not. 

^  Roscher.  A  nation  may  enrich  itself  at  the  expense  of  the  world,  as 
T  at  the  cost  of  my  neighborhood.  This  not  necessarily  by  arms,  nor  even 
by  its  own  act  at  all.  Great  Britain  has  for  years  had  cheap  sugar  partly 
as  a  gift  at  the  cost  of  the  continental  states,  through  the  operation  of  their 
sugar  bounties.     Of.  §  36,  n.  7. 

I'*  George,  Soc.  Problems,  90,  164  sqq.  Cannan,  §  i.  Perry,  126  sqq. 
Mill,  bk.  i,  ch.  v,  §  3:  "The  limit  of  wealth  is  never  deficiency  of  con- 
sumers, but  of  producers  and  productive  power."  This  truth  is  against 
writers  like  Malthus,  Chalmers,  and  Sismondi,  \\ho  have  alleged  unpro- 
ductive consumption  to  be  a  good,  without  which  wealth  would  accumulate 
beyond  needs  and  run  to  waste.  Crocker,  in  Quar.  Jour.  Econ.,  vol.  i,  362 
sqq.,  essays  to  show  the  same.  He  of  course  fails,  not  seeing  that  to  prove 
actual  over-production  in  many  departments  —  which  is  easy  —  is  far  from 
proving  general  over-production. 

§  22    The  Conditions  of  Production 

Garnier,  ch.  ii,  IV.     Roscher,  bk.  i.     Mangoldt,  bk.  ii,  ch.  ii.     Mill,  bk.  i,  ch.  i. 

These  may  be  grouped  in  three  classes,  as  follows  :  i 
The  ab.soliite,  without  which  no  production  whatever 
could  occur.  They  are  Nature  and  Labor,  and  their 
formula,  sine,  non.  ii  The  relatively  ab.solute,  in  whose 
absence  production,  possible  indeed  to  a  very  limited 
extent,  must  ever  be  too  meagre  to  result  in  civiliza- 
tion. These  are  Capital  and  Social  Organization,  and 
the  formula  for  tlicm  is  sine,  viinimmn.     iii    The  rela- 


THE    NATURE    OF    PRODUCTION.  39 

tive,  all  those  circumstances,  too  many  to  enumerate, 
whose  presence  in  greater  or  less  degree  makes  produc- 
tion abundant  in  proportionally  greater  or  less  degree 
The  formula  for  these  is  quanto  plus,  tanto  plus. 


chapti:r  II 

the  absolute  conditions  of  production 

nature- labor 
§  23     The  Materials  of  Nature 

Roscher,   §§    31-37.      Mangoldl,   §§    19,    20.      Leroy-Beaulieii,    Precis,  pt.  i,   ch.    L 
Sctwenberg,  Handbuch,  vol.  i,  194  sq. 

These  are  nature's  ^  passive  contribution  to  produc- 
tion, the  stuff  and  basis  with  which  the  process  begins. 
They  are  important  according  to  :  i  Their  abiiiHlaiice 
and  distribution.^  ii  The  number  and  intensity  of  the 
needs  which  they  serve  and  the  perfection  of  suth  ser- 
vice.'^ iii  The  expense  in  labor  and  capital  of  rendering 
them  available.*  iv  The  durability  of  their  products.^ 
Of  these  materials  some  arc  wbolly  appropriable,^ 
some  partially  so,  some  not  at  all.  Those  equally 
appropriable,  in  any  given  degree,  are  appropriated  the 
more  fully  the  better  their  value  becomes  known,  the 
fewer  they  are  in  proportion  to  the  need  for  them,  and 
the  more  the  use  of  them  presupposes  exclusive  posses- 
.sion." 

'  Human  nature  included.  "  Materials"  here  not  =  "matter  ";  hence 
one  may  speak  of  immaterial  materials.  All  nature  is  meant  so  far  ns  its 
static  aspect  extends  [§  24,  n.  i],  the  subject  for  all  known  forces,  the 
groundwork  for  all  the  phenomena  of  the  world.  But  for  the  peculiar 
original  endowment  of  man  as  distinguished  from  the  Ijrute,  production 
Would  he  little  more  than  the  ))assive  reception  of  nature's  gifts.  Brutes 
do  not  to  any  extent  utilize  [external]  nature  to  exploit  nature.     The  use 


THE    AHSOLUTE    CONDITIONS    f)F    PRODUCTION         4I 

of  a  stone  by  a  monkey  to  l^reak  a  cocoanut  is  referred  to  as  a  wonder. 
So  tlie  bird's  nest,  the  beaver's  dam  and  the  squirrel's  supply  for  winter. 

-  Iron  uill  illustrate.  Were  it  witli  nil  its  valuable  properties  as  scarce  as 
jade-stone,  or  plentiful,  yet  only  at  a  few  mines,  it  could  not  possess  the 
same  significance  for  the  world's  work  as  now.  The  world's  production 
of  iron  in  1882  amounted  to  9  million  metric  tons,  in  1885  to  7',  million. 
That  of  steel  was  in  1SS2  6^  million,  in  1S85  about  6  million.  That  of 
coal  was  in  1SS2,  377,707,000,  in  1SS4  375  million  [Xeumann-Spallart, 
Uebersichten  d.  Weltivirischaffl. 

8  So  coal  is  of  more  consequence  than  nickel,  or  even  gold.  Wood 
could  be  used  for  nearly  all  the  services  which  coal  performs,  but  many  of 
them  it  would  not  render  as  well. 

•*  Distant  or  deep  mines  or  quarries,  compared  with  those  close  by  and 
near  the  surface.  Magnificent  timber  may  grow  so  far  away  or  so  high  up 
mountains  as  to  have  little  worth.  A  marsh  may  be  potentially  the  best 
land  in  all  its  vicinity,  yet  in  fact  good  for  nothing  because  of  the  cost  of 
draining.  The  bronze  age  in  pre-historic  times  preceded  the  iron  age  for 
the  reason  that  bronze,  though  a  compound  [then  of  about  nine  parts 
copper  to  one  of  tin]  could  be  extracted  and  fused  much  more  easily  than 
iron.     On  'labor  '  and  'capital '  see  the  following  §§. 

'^  Ledges  of  granite,  other  things  being  equal,  are  far  more  a  treasure 
than  those  of  marble;  these  more  than  those  of  ordinary  sandstone.  Iron 
is  for  the  same  reason  giving  way  in  many  directions  to  steel,  and  wood  to 
iron. 

^  As  land,  with  its  birds,  animals,  timber,  mines  and  quarries,  most  of 
its  waterfalls  and  many  of  its  waters.  The  edge  of  the  ocean  is  appro- 
priated, by  nations  to  the  distance  of  three  miles  seaward,  and,  by  the  indi- 
viduals owning  adjacent  land,  so  far  out  as  it  is  available  for  any  useful  pur- 
pose [oyster-beds,  e.g.'l.  Open  ocean,  tides,  air,  climate  and  sunlight 
cannot  be  subjected  to  ownership.  Roscher  n^akes  the  possibility  or  im- 
possibility of  this  the  basis  for  his  classification,  perhaps  a  more  natural 
one  than  Mangoldt's,  which  the  text  follows. 

'  It  was  for  the  last  two  reasons  that  the  products  of  the  land  were 
made  private  property  earlier  than  land  itself,  and  the  movable  ones  earliest 
of  all 


42       the  absolute  conditions  of  production 
§  24    The  Forces  of  Nature 

Mangoldt,  §  21.     Roscher  and  Schoeuberg,  as  at  last  §. 

In  these  nature  aids  production  actively.^  They  vary 
in  importance,  according  to  abundaiice,  availability  and 
necessity,-  much  as  the  materials  do,  the  most  note- 
worthy special  circumstances  bein'^;  a)  their  kinds  and 
(lesrrees,^  b)  their  stability  and  roprularity,*  and  c) 
their  transportability/'  For  economic  purposes  the 
forces  of  nature  are  conveniently  classed,  sometimes 
(i)  as  organic*'  and  inorganic,  the  former  partly  psychi- 
cal and  partly  physiological,  the  latter  partly  mecbanical, 
partly  chemical ;  sometimes  (ii)  as  spontaneous,  need- 
ing only  to  be  applied  and  directed  by  man,  and  non- 
spontaneous,  requiring  first  to  be  developed  "  as  well ; 
and  sometimes  (iii)  as  inappropriable,  because  charac- 
terizing whole  districts  or  lands,^  and  appropriable,  as 
properties,  now  of  fixed,  now  of  movable  objects. 

^  Whether  or  not  matter  is  at  bottom  anything  but  force,  Economics 
has  no  need  to  inquire.  Nature  in  lier  dynamic  aspect  [§  23,  n.  i]  is  here 
our  theme.  Some  of  the  items  referred  to  in  §§  23,  24  connect  themselves 
about  as  well  with  the  one  phase  of  nature  as  w  ilh  the  other.  Mangoldt 
mentions  mineral  treasures  and  land-fertility  under  "  forces." 

'^  See  §  23.  As  to  availability  we  may  recall  that  the  arc  principle  of 
electric  lighting  was  known  so  early  as  Sir  Humphry  Davy's  experiments 
in  1 81 3,  but  no  method  of  generating  electricity  cheaply  enough  to  make 
the  discovery  valuable  was  invented  till  about  1878,  in  Brush's  dynamo. 
The  incandescent  principle  too  was  understood  for  years  previous  to  the 
application  of  it  by  Edison,  which  made  it  a  commercial  success.  Nearly 
every  one  of  men's  most  precious  insights  into  nature  has  thus  lain  sterile 
for  a  longer  or  a  shorter  time. 

'  Many  merely  do  what  men  could  at  some  rate  do,  others,  the  same  in 
kind,  transcend  in  degree  the  utmost  reach  of  human  energy.     Nature's 


THE    ABSOLUTE    CONDITIONS    OF    PRODUCTION  43 

chemical  forces,  as  also  the  propensities  and  many  of  the  powers  of  brutes, 
are  intrinsically  unlike  any  which  unaided  man  could  supply. 

*  A  brook's  value  as  a  water-power  is  greatly  lessened  if  it  habitually 
dries  up  in  summer.  Wind  sometimes  drives  sailing  vessels  faster  than 
steamers  can  go,  but  it  is  not  to  be  depended  on.  Hence  windmills  are 
used  only  for  irregular  work  or  where  trustier  motors  fail  or  are  very  costly. 

^  Water-power  has  to  be  used  in  si/u.  Coal  can  be  carried  far,  though 
with  difficulty  and  expense.  Suppose  it  were  but  a  hundredth  as  heavy  or 
bulky  as  it  is !  It  is  estimated  that  could  the  power  of  Niagara  be  trans- 
ported thither  it  would  furnish  all  the  light,  heat  and  power  needed  by 
New  York  City.  This  may  one  day  come  to  pass  by  turning  ihe  force  into 
electricity,  carrying  it  either  stored  or  by  means  of  conductois,  and  re- 
converting it  as  needed. 

''  Belonging  to  hum.nn  beings,  lower  animals,  plants.  Among  the  physi- 
ological do  not  overlook  the  reproductive  forces  of  animals  and  plants,  on 
which  the  evolution  of  varieties  depends. 

'  This  difference  well  illustrated  by  a  water  or  a  wind  mill  on  the  one- 
hand  and  a  steam  mill  on  the  other.  As  civilization  and  man's  mastery  of 
nature  go  forward,  the  spontaneous  forces  lose  in  relative  importance  and 
the  developed  ones  gain. 

8  Winds,  tides,  navigable  streams,  the  sun's  heat  and  light. 

§  25     Labor:    its  Necessity 

A/i?/,  bk.  i,  ch.  i.    M'Cti/!oc/i,  pt.  ii,  ch.  i.    Carin'er,  ch.  Hi.    C/(jr;t,  Phiios.  of  Wealth, 
ch.  ii.     Schoenberg,  vol.  i,  196  sqq.     Robinson,  Thoughts  on  W.  and  its  Sources. 

Labor  is  the  exertion  ^  of  liuinan  beings  directed 
toward  productive  or  economic  ends.  It  consists  in 
'the  action  of  spirit  on  itself  and  on  matter,' ^  always 
involving  an  intellectual  as  well  as  a  physical  element. 
Labor  is  equally  with  nature  a  fundamental  ^  requisite 
to  wealth.  But  for  it  '  mankind  would  necessarily  perish 
off  the  face  of  the  globe  even  if  all  soils  were  fertile  and 
all  climates  temperate.''^  On  the  other  hand  it  is,  how- 
ever important,  a  means  ouly,^  not  an  end. 

1  Sometimes  it  is  said  to  be  the  'voluntary'  exertion,  etc.,  this  word 
being  added  to  exclude  slaves'  work.     But  it  is  far  more  natural  to  call 


44  THK    ABSOLUTE    CONDITIONS    OF    PRODUCTION 

this  labor  tli.in  to  rank  it  with  the  energizing  of  brutes.  Labor  is  exertion, 
"  and  il  is  necessary  to  inchule  in  the  idea  not  only  the  exertion  itself  but 
all  feelings  of  a  disagreealile  kind,  all  bodily  inconvenience  or  mental  an- 
noyance connected  with  the  employment"  [Mill].  Not  all  human  activity 
is  labor.  Activity  may  have  merely  the  aim  of  enjoyment.  Yet  sport  en- 
gaged in  with  the  express  aim  of  rendering  one's  self  efficient  in  labor 
might  itself  be  classed  as  labor. 

-  Roscher.  So  J.  B.  Clark  :  "  To  a  large  and  controlling  extent  the 
mental  element  is  present  in  the  simplest  operations.  With  the  laborer 
who  shovels  in  the  gravel-pit  the  directing  and  controlling  influence  of 
the  mind  predominates  to  an  indefinite  extent  over  the  simple  foot-pounds 
of  mechanical  force  which  he  exerts."  On  the  other  hand  no  labor  is 
purely  mental.  Pen,  tongue,  or  at  least  brain  must  be  employed  in 
every  kind.  Mill,  after  Bacon,  rightly  resolves  all  physical  labor  into  an 
impartation  of  motion  to  some  portion  of  matter. 

'^  More  truly  so  than  capital,  as  we  shall  see. 

*  Cannan. 

^  This  to  warn  against  such  common  vagaries  as  that  whatever  'makes 
work  '  must  be  a  blessing  and  whatever  lessens  it  a  bane.  Conflagrations 
make  work  :  machines  and  inventions  save  work. 

§  26     Its  Forms 

Mill,  bk.  i,  ch.  ii.     Roscher,  §  38.     Cohn,  290-298.     Clark,  as  at  §  23.     Held,  Grun- 
driss,  §  5. 

The  chief  forms  assumed  by  labor  are^ :  i  Invention 
and  discovery,  ii  Getting  in  possession  nature's  spon- 
taneous gifts,  cither  by  mere  occupation  or  by  extrac- 
tion, iii  Creating?  raw  materials  by  the  nianiimlation 
of  nature's  forces,  as  in  agriculture  and  stock-rearing, 
iv  Manufacturing?  the  crude  effects  of  ii  and  iii  into 
higher  forms,  v  Distributing  things  already  formally 
produced,  vi  Excliantfinj?  the  same,  vii  Imparting 
instruction,  viii  Securing  protection.  i\  Directing 
the  labor  of  others,     x  Making  laAvs. 

1  The  classification  is  nearly  that  of  Roscher,  as  above,  only  dividing 
his  one  class  of  "  services  "  into  our  vii,  viii  and  x,  and  inserting  ix,  which 


THE    ABSOLUTE    COXDJTlUNS    OF    rKODUCTIUN  45 

he  omits.  We  shall  fmil  dial  the  function  of  llic  entrepreneur,  contractor, 
undertaker,  or  niiddle-man  is  at  boltonj  but  a  species  of  labor.  Clark's 
arrangement  of  labor-products  in  four  classes:  elementary  utilities,  form 
utilities,  ])lace  utilities,  and  lime  utilities,  is  good  as  far  as  it  goes,  but  is 
meant  to  allow  for  material  wealth  alone.     With  this  §  ef.  §  20- 


§  27     Its  Relation  to  Nature 

Mill,  bk.  i,  cli.  i,  §  3.     Leroy-Beaulieu,  Precis,  pt.  i,  chaps,  i,  ii.     Roscher,  §  37. 

In  no  form  of  production  can  one  of  these  factors  be 
strictly  pronounced  more  important  than  the  other, 
since  each  is  absolutely  indispensable.^  Yet  if  meas- 
nred  by  bulk  different  products  display  the  presence  of 
tile  two  ingredients  in  very  various  degrees,^  the  general^ 
rule  being  that  the  labor-element  in  wares  predominates 
in  proportion  to  removal  from  their  crude  state.  Intel- 
lectual wealth  too  is  built  up  with  less  or  greater  labor 
according  to  richness  of  native  endowment  in  its  subject. 
Nor  if  mca.surtMl  in  dollars'  worths  do  equal  amounts 
of  the  different  species  of  wealth  embody  labor  equally,* 
though  the  correspondence  is  in  this  case  much  closer. 

1  "The  part  which  nature  has  in  any  work  of  man  is  indefinite  and 
incommensurable.  It  is  impossible  to  decide  that  in  any  one  thing  nature 
does  more  than  in  any  other.  One  cannot  even  say  that  labor  does  less. 
Less  labor  may  be  required,  but  if  that  which  is  required  is  absolutely 
indispensable,  the  result  is  just  as  much  the  product  of  labor  as  of  nature  " 
[Mill].  He  adds  that  when  two  conditions  are  thus  equally  necessary 
to  a  result,  the  endeavor  to  fix  their  relative  proportions  of  contribu- 
tion is  like  attempting  to  decide  which  blade  of  a  pair  of  scissors  is  the 
more  efficient;  or  whether  5  or  6  is  the  main  factor  in  their  product,  30. 
On  the  impossibility  of  ascertaining  with  any  exactness  the  mass  of  laboi 
which  has  entered  into  any  commodity,  Mill,  bk.  i,  ch.  ii,  §  i. 

-  A  ton  of  steel  and  a  ton  of  needles  or  of  watches.  The  average  pro- 
duction of  the  Tonid  Zone,  taken  bulk-wise,  contains  far  less  labor  than 
that  of  the  North  Temperate. 


46        THE    ABSOLUTE    CONDITIONS    OF    PRODUCTION 

8  General,  not  by  any  means  universal,  since  mere  occupation  is  some- 
times, as  in  the  case  of  diamonds,  an  affair  of  much  labor.  A  buffalo  robe 
stands  for  several  times  more  labor  now  than  in  1S50.  The  extraction  of 
ores  often  requires  the  fmest  appliances  of  mechanic  art,  to  be  had  and 
used  oidy  at  immense  outlay.  Of  different  petroleum  wells,  costing  each 
the  same  amount  to  bore  and  work,  one  has  been  known  to  yield,  for  a 
considerable  period,  oil  2000  times  beyond  the  average  product  of  other 
wells  which  were  still  pumped  \\  ith  more  or  less  prolit. 

•»  This  against  the  labor-value  fallacy  of  Adam  Smith,  Marx  and  the 
socialists  generally.  Cf.  Mill,  as  cited  in  n.  i,  above.  The  dollar  measure 
is  of  course  the  same  as  that  of  exchange  value.  The  correspondence  to 
amounts  of  labor  would  be  no  more  perfect  were  goods  to  be  rated  accord- 
ing to  their  degrees  of  utility,  or  according  to  their  values  proper  [oner- 
ously created  utilities:  §  I,  n.  6]. 


CHAPTER    III 

the  relatively  absolute  conditions  of 

production 

capital- social  organization 
§  28     Capital  Defined 

Ad.  Sivtith,  hk.  ii.  Mill,  bk.  i,  ch.  iv.  Marshall,  Economics  of  Industry',  bk.  i,  cVi.  iii. 
Roicher,  §  42.  Sid^wick,  p.  143.  Clark,  Cap.  and  its  Earnings,  Papers  of  Am.  Ec. 
Ass.,  vol.  iii.  Leroy-Hcaulieu,  pt.  i,  ch.  iii.  Cossa,  Snggi  di  Ecoiwmia  Folitica, 
pt.  iii,  I.  Sii/iiiio,  II  Capiiale  neW  Organisino  Econotiiico.  Schoenberg,  vol.  i, 
206  sqq.     Knies,  Geld,  I.     Bohm-Bawerk,  KapHal  it.  Kap.-zins. 

Capital^  i.s  the  name  of  all  products,  material  or 
immaterial,  which  are  engaged  in  or  devoted  to^  the 
mission  of  helping  labor  to  create  further  product.s. 
It  is  thus  one  great  department  of  wealtli.  Sharply  to 
be  distinguished  from  it  are,  (i)  nou-capital  wealth,  viz., 
the  portion  of  wealth  destined  for  immediate  consump- 
tion, and  (ii)  property  which  is  not  wealth  at  all  but  a 
condition  of  wealth,  like  laud'^  apart  from  improvements 
thereon,  and  the  original  endowments  of  slaves.  The 
boundary  between  capital  and  other  wealth  often  wavers 
and  is  sometimes  untraceable,  an  article's  place  on  this 
or  that  side  of  the  line  frequently  depending  on  the 
owner's  varying-  intention,  and  many  things  being  used 
now  for  gain,  now  for  pleasure. 

^  There  have  been  and  still  nre  many  different  conceptions  of  capital : 
i  The  classical,  medi;\:val  and  mercantilist,  making  it  the  same  that  is  now 
called  "  principal,"  as  opposed  to  interest,  — in  Greek,  Ki<p6.Ka.iov\  in  Latin, 
caput,  or   capiialis  pars   dehiti.      ii  The  physiocratic,  by  which    capital 


48  THE    ABSOLUTE    CONDITIONS    OF    I'KODUCTION 

means  massed,  reserved  or  stored  material  products  of  nny  kind  [not  money 
ftlone],  whatever  their  destination.  Knies  still  defines  thus,  iii  The  mod- 
ern, taking  it  to  include  all  means  of  production  whatever  their  origin,  i.e., 
land  as  well  as  capital,  iv  The  most  modern  :  capital  consisting  only  of 
produced  means  of  production,  land  excluded  therefore,  and  regard  had  to 
both  origin  and  end.  iii  and  iv  afford  each  a  still  further  division  accord- 
ing aj  capital  is  thought  of  as  material  only  or  as  in  part  immaterial  also. 
The  te.\t  gives  iv  in  its  second  phase.  H.  George's  definition  [Prog,  and 
Poverty,  bk.  i,  ch.  ii,  end],  capital  =  wealth  in  course  of  exchange,  is  practi- 
cally equivalent  to  iv  in  its  first  phase. 

-  Products  may  be  '  devoted  to  '  further  production  yet  teinporaiily  idle, 
as  in  a  factory  or  foundry  during  hard  times.  Such  property  may  be  called 
'dead  capital,'  and  in  this  sense  alone  is  capital  usually  styled  'dead.' 
But  'dead'  would  not  be  an  inapt  njjpellation  for  it  when  only  techni- 
cally productive  [§  21,  n.  4].  Capital  is  by  no  means  dead  simply  because 
passive  and  inert  like  an  instrument,  instead  of  living  and  growing  like 
animals  and  trees,  though  this  distinction  is  worthy  of  notice  [Prog,  and 
Pov.,  162  sqq.  Cf.  Kastiat's  fable  of  the  plane,  in  his  panij^h.  on  Capital  et 
Keitle,  (Euvrcs,  vol.  v,  43  sqq.].  Things  made  for  sale  but  which  no  one 
wants  are  not  capital  at  all :  nor,  as  a  rule,  are  they  even  wealth,  but  waste 
rather.  H.  George  [bk.  iii,  ch.  iv]  speaks  of  'spurious'  capital,  meaning 
partly  values,  like  land,  that  are  miscalled  capital,  partly  those  employed, 
as  in  gambling,  productively  perhaps  for  A  or  1]  l)ut  not  for  society. 

'  For  ruling  out  land  [proper],  see  II.  George,  Social  Problems,  183  sq.. 
Prog,  and  Pov.,  bk.  iii,  ch.  iv;   also  Cossa,  as  above,  162. 


§  29     Kinds  of  Capital 

Roscher,  §  42.     Ad.  Stitith,  bk.  ii.     Schoenberg,  vol.  i,  212  sqq. 

Roscher  has  well  classified  the  various  forms  of  capital 
as  follows  :  i  Improvements  upon  land,  ii  Buildings, 
streets  and  roads,  iii  Tools,  instruments  and  machines.^ 
iv  Useful  domestic  animals,  v  Materials  for  inanii- 
factiirc  which  will  roaijpfar  visibly  in  the  product.^ 
vi  Materials  to  aid  manufacture  which  will  not  thus 
r<':ii>pc'ar.^  vii  Food  and  clotliinj^'  for  the  support  of 
laborers  while  they  labor,    viii  Stocks  of  goods  for  sale. 


THE    ABSOLUTiC    CONblTIONS    Ol"    I'KUlJL  Ll  ION  49 

i.\  Money,  x  liicorporeal  or  immaterial  capital.  To 
this  list  \vc  have  only  to  add  weapons  and  means  of 
transportation.  Capital  is  often  conveniently  classi- 
fied more  briefly,  as  a)  materials  to  work  up,  b)  tools* 
to  work  with,  and  c)  subsistenee.''  Very  important  is 
the  distinction  between  free  and  specialized^  capital, 
and  still  more  so  that  between  flxed  and  circulating.' 

1  An  iintrwiicut  is  passive  in  nature,  a  tool  [perhaps  from  same  root 
as  '  do  'J  active.  A  saw-huck  is  an  instrument,  a  saw  a  tool.  When  an 
exira-human  force  is  joined  to  either  or  to  the  two  combined  we  have  a 
machine.  Historically  such  motors  have  been  applied  in  the  order  of 
i  brute  strength,  ii  water,  iii  wind,  iv  steam,  v  electricity.  For  pulverizing 
grain,  hammers  were  first  used,  then,  in  order,  hand-mills,  ass-power  mills 
[Matthew  18,  6],  water-mills  [which  Roscher  dates  from  Cicero's  time], 
wind-mills  [from  9th  century]  and  steam-mills  [since  1782]. 

-  As  wool,  cotton,  flax,  and  coloring  matters  in  cloth,  leather  in  shoes, 
etc.,  also  all  sorts  of  ornamentation. 

3  As  co.\l,  bleaching  material,  lubricants. 

*  Here  taken  in  the  largest  sense,  including  machinery  and  buildings. 

S  Clothing  and  houses  as  well  as  food  being  meant. 

^  According  as  it  is  not  or  is  so  bound  up  with  a  given  kind  of  produo 
tion  as  to  be  applied  to  another  only  with  much  difficulty  and  loss.  De 
struction  of  the  free  variety  is  dollar  for  dollar  more  disastrous  than  that  ol 
the  specialized.     Cf.  11.  C.  Adams,  Outline,  §§  iS,  19. 

"  Capital  which,  eg.,  mills,  machinery,  etc.,  exists  a  considerable  time 
in  any  one  relatively  permanent  form,  aiding  repeated  processes  of  pro- 
duction, belongs  in  the  former  category;  that  which  fulfils  its  entire  func- 
tion ai  capital  of  a  given  kind  [changes  its  nature:  is  used  up]  in  a  single 
process  of  production,  comes  under  the  latter.  Raw  material  and  all  goods 
kept  for  sale  well  illustrate  circulating  capital.  A  grindstone  lying  in  a 
hardware  store  is  circulating;  revolving  in  a  shop,  fixed.  So  of  all  ma- 
chinery. Money  is  fixed  capital  for  society,  circulating  for  the  individual. 
This  distinction  is  relative,  as  no  capital  is  absolutely  'fixed.'  Even  money 
wears  out  :  nainque  in  ipso  usie  adsidua  permntaliotie  qiwdammodo  extin- 
guilur  [Instt.  of  Justinian,  II,  4].  The  proportion  of  fixed  to  circulating 
capital  in  any  community  increases  with  the  advance  of  civilization. 


50         THE    ABSOLUTE    CONDITIONS    OF    TRODUCTIOiN 


§  30     The  Place  of  Capital  in  Production 

.VarjAa//,  asat  §  2S.     il//7/,  bk.  i,  ch.  v.     Cfor^fr,  Prog,  and  Pov.,  bk.  i,  ch.  v.     Cairttes, 
Leading  Principles,  164  sqij.     Senior,  Pol.  Ec,  58  sqq. 

The  following  propositions  touching  capital  are  fiinrta- 
montal  and  of  first  importance  :  i  All  capital  is  the  re- 
sult of  labor  and  secondary  thereto/  and  all  material 
capital  the, fruit  of  al>.stiiience ^  and  economy,  ii  On 
the  other  hand  all  labor  is  dependent  for  its  efficiency 
on  capital.^  iii  The  real  support  of  labor  consists  in 
the  capital  which  it  employs  and  not  in  demand  for  the 
commodities  or  services  it  yields.^  iv  Material  capital 
is  a  good  only  as  it  ministers  to  consumption,"*  and  it 
is  itself  destined  to  be  consunje4l.^ 

1  Sir  William  Hamilton's  elucidation  of  the  intimate  relations  between 
speech  and  language,  l)y  citing  the  operation  of  tunnelling  through  a  sand- 
bank, is  to  our  point  here.  As  the  digging  must  precede  the  shoring  o( 
plank  or  l)rick,  yet  can  only  just  precede,  and  as  thought  must  exist  in  ad- 
vance of  speech  but  only  be  a  little  in  advance,  so  labor  is  the  absolute 
prius  of  caiiital,  and  still  totally  dependent  upon  capital  for  any  considera- 
ble development. 

2  A  function  quite  distinct  from  labor,  and  very  important.  See  Senior, 
as  above.  This  subject  will  emerge  again  when  we  discuss  Interest,  in 
Part  IV.     Cf.,  too,  §  46. 

3  Mill,  bk.  i,  ch.  v,  §  9,  needlessly  obscures  this  important  truth,  yet  is 
clearer  than  Laughlin,  who,  in  his  edition,  has  substituted  his  own  for 
Mill's  exposition.  The  idea  is  simply  that  no  matter  how  great  the  demand 
for  a  commodity,  unless  it  were  of  an  extremely  simple  order,  labor  would 
not  be  encouraged  to  attempt  the  production  of  it  so  long  as  no  one  willed 
to  supply  capital  to  aid.  Any  increase  to  the  stock  of  [non-specialized] 
capital  increases  the  demand  for  labor,  and  [barring  increase  in  number  of 
lal)orers]  elevates  the  level  of  wages.  On  the  contrary,  any  such  applica- 
tion of  wealth  as  merely  to  act  on  demand  and  not  to  swell  the  stock  of 
capital,  robs  labor  of  so  much  support.  Demand  alone,  however,  [efficient 
demand  is  of  course  meant,  i.e.,  ^uisk  backed  by  money]  is  competent  to 


THE    ABSOLUTE    CONDITIONS    OF    PRODUCTION  5  I 

change  the  direction,  the  department,  in  which  labor  shall  apply  itself.  It 
might  conceivably,  by  some  jjcculiar  concuurse  of  circumstances,  set  capital 
free  in  such  a  way  as  to  render  it  more  serviceaijle  than  in  its  previous 
form,  thus,  without  being  increased  at  all,  actually  fuitlicring  the  interests 
of  labor.  l''resh  production  of  capital  will  result,  but  only  as  a  consequence 
of  the  encouragement  given  to  labor.  Thus,  suppose  $looo  arc  spent  for 
liquors,  and  the  money  placed  by  the  liquor-dealer  in  the  bank,  whence  of 
course  it  is  at  once  loaned  out  to  aid  industry  and  so  lal)or.  Mill  ignores 
this  possibility.  It  would  confessedly  be  better  still  for  labor  had  the 
money  been  aiJjilied  in  the  first  instance  as  sujiply  instead  of  as  demand, 
which  is  all  that  Mill  shows.  But  if  his  statement  is  not  valid  quite  as 
unqualifiedly  as  he  supposed,  this  fact  detracts  not  a  whit  from  its  impor- 
tance. The  la-.il  is  as  he  declares.  Nor  does  this  admission  bind  us  to 
accept  his  theory  of  wages  [see  Wages,  in  Part  IV]. 

*  Not  that  consumption  in  sc  is  a  good.  It  is  only  a  means  to  a  good, 
viz.,  the  gratification  lying  beyond.  But  as  it  is  an  indispensable  means, 
men  being  constituted  with  needs  which  only  economic  consumption  can 
supply,  production  becomes  worthful  for  consumption's  sake.  Could  the 
end  be  reached  without  consumption,  the  latter  would  at  once  cease.  A 
machine  which  could  do  its  work  and  never  wear  out,  would  be  a  prize. 
Hence  the  search  for  perpetual  motors.  Hence,  too,  the  more  fruitful 
quest  for  instruments  which  will  do  given  amounts  of  work  with  the  least 
motive  power  and  friction. 

^  Why,  then,  is  it  so  valuable?  the  pupil  might  at  first  ask.  If  it  must 
return  to  nothing,  why  call  it  into  being  in  the  first  place?  Because  capi- 
tal, though  perishable,  is  still  indispensable.  If  it  perished  twice  as  fast, 
were  we  forced  to  spend  double  the  time  we  now  do  in  replacing  it,  we 
should  have  no  choice  but  to  toil  for  it  as  at  present.  Material  capital 
more  than  pays  for  itself  during  its  brief  life,  and  besides  may  be  so  con- 
sumed as  to  reproduce  itself,  and  more.  Thus  individuals  die,  but  the  race 
lives  and  spreads.  Far  the  greater  part  of  the  capital  at  any  moment  exist- 
ing is  less  than  a  year  old.  .Almost  trifling  in  quantity  is  that  which  is 
over  ten.  But  the  entire  bulk  of  capital  in  man's  possession  now  was 
aided  into  being  by  that  long  since  consumed.  Every  nail  in  England 
can  be  traced  back,  directly  or  indirectly,  to  savings  made  before  the  Nor- 
man Conquest  [Senior]. 


52         THE    ABSOLUTE    CONDITIONS    OF    PRODUCTION 


§  31     Society 

Clark,  Philos.  of  Wealth,  ch.  iii.  H'cftic'ii,  Social  Law  of  Labor,  Int.  Bastiat,  Har- 
monies, ch.  i  \aLuvres,  vol.  vi,  24  sqq.]-  Spencer,  Principles  of  Sociology,  pt.  ii, 
cli.  ii.     I'illey,  Ri'U  de  Viiat  dans  I'ordre  icon. 

To  be  in  the  least  (lei;ree  copiou.s,  production  requires 
the  existence  of  society.  Man  is  by  nature  a  social 
beinc:.^  The  individual  of  himself  does  not  form  a 
totality.  Society  must  coiiiplcineiit  him.  Except  as 
parcel  and  facet  of  the  social  body  he  can  be  nothing 
but  a  fragment.  Now  society  is  an  org'anisni,  its  units 
so  vitally  related  that,  as  in  a  tree^  or  in  the  animal 
frame,  each  is  both  end  and  means,  at  once  serves  and 
is  served  by  all  the  rest.  Not  only  are  the  productive 
powers  of  the  individual  as  such  incapable  of  develop- 
ment without  a  human  environment,-'^  but  even  if  de- 
veloped they  would  be  useless,  having  no  scope  for 
action.^  Social  organization,  the  interplay  of  supply 
and  demand,  the  right  mutual  relations  between  pro- 
ducers and  consumers  would  be  needed. 

'  A  "  political  animal,"  as  Aristotle  calls  liim.  Genesis,  II,  18:  "not 
good  for  man  lo  he  alone,"  has  the  same  meaning.  It  does  not  refer  to 
marriage  simply. 

-  "The  rootlet  of  a  tree  shares  with  the  remote  leaf  the  nutriment  which 
it  absorbs  from  the  earth,  and  the  leaf  shares  with  the  rootlet  that  which 
it  gathers  from  the  sunlight  and  the  air.  This  universal  interdependence 
of  parts  is  a  primary  characteristic  of  social  organisms;  each  member  ex- 
ists and  labors,  not  for  himself  but  for  the  whule,  and  is  dependent  un  the 
whole  for  remuneration.  The  individual  man,  like  the  rootlet,  produces 
something,  puts  it  into  the  circulating  system  of  the  organism,  and  gets 
from  thence  that  which  his  being  and  growth  recjuire."  Clark,  as  above, 
38  Sf|.     Cf.  ante,  §§  12,  13,  15,  and  notes. 

■•  This  side  of  the  truth  Bastiat  in  his  line  discussion  overlooks,  as  do 
all  the  writers,  like  Adam  Smith  and  his  discii)les,  whose  notion  of  society 


THE    ABSOLUTE    CONDITIONS    OF    PRODUCTION  53 

came  from  eighteenth  century  liberaHsm.  They  have  been  too  apt  to  con- 
ceive the  individual  man  as  complete  in  himself,  and  society  as  a  mere 
^{Jg"^«-*g^''on  of  such  individuals,  sustaining  to  one  another,  indeed,  rela- 
tions the  most  complicated,  but  not  organic  [§  15,  n.  i].  Rousseau's 
"  Social  Contract  "  is  the  classic  for  this  theory  of  society. 

••  Bastiat,  as  above,  computes  that  through  social  co-operation  and  the 
consequent  amassing  of  wealth,  one  man  may  by  his  own  efforts  enjoy  now 
more  satisfactions  than  he  could  earn  in  ten  centuries  were  he  obliged  to 
begin  and  work  without  such  aid.  "  If  the  causes  of  a  man's  economic 
weal  or  misery  once  lay  in  what  he  himself  did,  now  they  are  to  be  found 
as  well  in  what  is  done  and  experienced  by  those  a)  for  whom  he  produces, 
b)  whose  products  he  desires,  c)  who  produce  for  others  in  the  same  line 
as  he,  and  d)  desire  from  others  the  same  product  as  he  "  [Knies,  Pol. 
Oek.,  164  sq.  Cf.  Ely,  Past  and  Pres.  of  P.  E.,  p.  50].  Take  an  operative 
in  A's  cotton  factory,  earning  $1.50  per  diem.  That  wage  is  conditioned 
upon  the  existence  of:  i  The  factory,  with  its  owner  and  his  capital. 
ii  Builders  of  factories  and  machinery,  with  their  respective  plants  and 
groups  of  workmen,  insuring  to  A  the  possibility  of  repairing  or  replacing 
his  plant  were  it  injured  by  fire,  storm  or  earthcjuake,  —  each  man  in  all 
these  groups  being  bound  in  the  same  mesh-work  of  relationships  as  the 
operative  in  question,  iii  Men  working  southern  cotton-fields,  every  one 
dependent  in  this  same  way.  iv  People  similarly  circumstanced  engaged 
in  the  manufacture  of  implements  for  cotton-raising,  v  Still  others,  so 
circumstanced,  building  and  running  steamboats  and  railways  to  transport 
the  various  wares  mentioned,  vi  Human  beings  in  all  lands  who  wish 
cotton  fabrics  and  have  means  to  buy  them,  vii  Morality,  customs  and 
laws,  making  possessions  and  traffic  secure,  viii  Teachers,  writers,  legis- 
lators, judges,  police  and  army,  giving  sustenance  to  vii,  each  enabled  to  fill 
his  place  only  by  a  complex  congeries  of  action  and  reaction  like  this 
which  we  are  tracing. 

§  32     The   State 

Wagner,  Lehrb.  d.  Pol.  Oek.,  §  161.      James,  et  al.,  in  Science  Economic  Discussion, 
26-43.     Schoenberg,  vol.  i,  197,  255  sqq.     Spencer,  Prin.  of  Sociology',  pt.  v. 

Every  separate  permanent  human  community  sponta- 
iieously  1  assumes  more  or  less  authority  over  its  mem- 
bers, forcing  each,  within  certain  limits,  to  obey  the 
collective  will.      This  is   inevitable.     Such   authority 


54         THE    ABSOLUTE    COKDITIONS    OF    PRODUCTION 

always  has  been  exercised,  and  always  will  be,^  however 
high  a  degree  of  moral,  political  or  economic  advance- 
ment may  be  reached.  In  its  character  as  asserting  and 
exercising  this  eminent  domain  society  becomes  the 
state.  Society  is  in  principle  no  less  indispensable 
economically  in  this  aspect  than  in  that  of  an  organism 
merely.  Not  alone  anarchy  but  the  slightest  real  in- 
security to  life  or  property  will  paralyze  production. 
Even  among  the  best-meaning  citizens  there  must  be 
some  authoritative  tribunal  to  settle  honest  disputes. 
Besides,  nearly  all  peoples  have  vital  interests  of  a 
purely  economic  nature  which  only  the  state  can 
administer."^ 

1  We  see  this  from  what  occurs  in  mining  camps  and  caravans,  and 
among  pirates.  Government  does  not  originate  in  contract  any  more  than 
life  does,  though  a  particular  y^^rw  of  polity  may  thus  arise. 

2  Contrary  to  the  belief  of  the  anarchists,  who  expect  to  take  out  of 
government  the  whole  element  of  authority,  reducing  it  to  mere  adminis- 
tration [§  14,  n.  i].  This  cannot  be.  It  is  not  the  wickedness  of  men, 
which  may  in  time  abate,  but  the  permanent  fmiteness  of  their  knowledge, 
that  renders  anarchy  impossible  of  reali/alion. 

^  .See  §  15,  n.  2;  §  36,  n.  7.  Cf.  Villey,  as  at  §  31.  Thus,  England 
never  had  an  efficient  express  system  till  Fawcett,  as  Post-Master  General, 
introduced  the  Parcels  Post.  Then  all  the  railways  took  up  the  business 
and  accommodations  of  this  sort  became  good. 


CHAPTER    IV 

the  relative  conditions  of  production 

§  33     General  View 

Mill,  bk.  i,  chaps,  vii-xiii.  Mangoldt,  pp.  20-44.  Gamier,  pt.  ii,  sec.  iii.  Caiman, 
§§  5  sqq.  Hfld,  p.  48.  Schoenberg,  vol.  i,  198-262.  Roscher,  103-209.  Ad.  Smith, 
bk.  i,  ch.  i.     Cossa,  Eleinenti,  sec.  ii,  ch.  iv.     Bagehot,  Ec.  Studies,  vi. 

All  four  of  the  preceding  conditions  being  given  the 
production  of  wealth  will  ensue,  but  will  be  more  or 
less  abniulant  according  to  a  multitude  of  furtlier 
circiiinstances.  The  chief  of  these  arc  now  to  be  dis- 
cussed. They  include  whatever  increases  the  amount 
or  the  efficiency  of  either  capital  or  labor,  viz.,  those 
things^  which  somehow  (i)  promote  man's  power  to 
save  wealth,  (ii)  quicken  his  will  to  do  the  same, 
(iii)  prompt  the  determination  to  labor,  (iv)  better  the 
qtiality  of  labor,  (v)  strengthen  the  labor-force  of  the 
country  or  countries  in  question,  or  (vi)  enable  men  to 
make  the  most  out  of  a  given  amount  of  labor.  The 
progress  will  take  place  through  such  an  application  of 
the  free  capital  and  labor  available  from  time  to  time, 
as  shall  not  only  make  good  all  consumption  involved 
but  also  create  a  surplus.^  This  may  occur  in  either  of 
three  ways  :  i  Increase  of  product  without  propor- 
tional increase  of  expense.  2  Diminution  of  expense 
without  proportional  diminution  of  product.  3  Increase 
of  product  along  with  diminution  in  expense.  The 
result,  like  the  aim,  will  be  a  continual  I'cduction  on 


56         THE    RELATIVE    CONDITIONS    OF    PRODUCTION 

the  whulo,^  in  the  amount  of  human  toil  necessary  for 
a  unit  of  product.  Human  needs  being  expansive, 
however,  and  the  utmost  possible  supply  to  them  limited, 
labor  can  never  become  unnecessary,  nor  decrease  in 
absolute  quantity,  but  only  relatively  to  product. 

1  The  power  to  save  depends  on  good  government,  industrial  libert)', 
thrift,  etc.;  the  will  to  labor  or  to  save,  on  nioralily,  freedom,  private  prop- 
erty, culture,  high  rate  of  interest,  and  the  like;  the  labor  force,  on  num- 
bers, favorable  climate,  health,  strength;  the  quality  of  labor,  on  such 
considerations  as  intelligence,  education,  and  practice.  Chief  aids  to  the 
ability  to  make  most  out  of  a  given  amount  of  labor  are  machinery  and 
the  organization  of  labor.     See  on  all  this  §§  35  sqq. 

-  .Sir  William  Petty,  Political  Arithmetic,  ch.  i,  names  this  process  of 
progressive  increase  to  wealth,  '  supcrlucration  '  —  not  a  bad  term. 

^  '  On  the  whole,'  because  although,  as  pointed  out  in  §  34,  agriculture 
and  mining  follow  another  law,  the  disadvantage  thus  arising  bids  fair  to 
be  offset  for  an  indefinite  time  to  come  by  the  greater  and  greater  cheap- 
ness of  manufactured  articles. 

§  34     Diminishing  Return  and  Increasing  Return 

Marshall,  bk.  i,  ch.  iv.     Sidgwick,  151  sqq.      ll^alier,  Wages,  89  sqq.     Cairties,  Log. 
Melh.,  50,  51,  n.     //.  C.  Adams,  Principles  to  Control  State  Interf.  in  Industries. 

The  general  rule  of  growth  in  production  is  :  the 
more  effort  applied  to  nature,  the  more  product,  effort 
including  capital  also,  as  hoarded  labor.  If,  however,  a 
long  period  of  time  is  considered,  two  important  varia- 
tions from  this  are  perceived  to  hold.  In  afj;riculture 
and,  with  modifications,  in  niininj;-,  the  law  of  dimini.sli- 
ing  return  1  prevails,  that,  in  tlic  long  run,  increase  of 
effort  secures  a  le.ss  than  proportional  increase  of 
product.  The  operation  of  this  law  in  agriculture  may 
sometimes  be  temporarily  postponed  and  even  dispro- 
portionately large  returns  secured,  by  (i)  increase  of 
poiiulation,'^    (ii)    improved    macliiues    and    methods 


TiiK  RELATIVE  COX duions  OF  ['Ronucriox        57 

(iii)  bringing-,  in  a  new  country,  more  fertile  or  conven- 
ient laud  under  cultivation.^  Manufactures  on  the 
other  hand  are,  as  a  class,  subject  to  a  law  of  increas- 
ing return,  the  creation  of  their  products  growing 
steadily  less  and  less  costly  per  unit.-^  Increasing  re- 
turn characterizes  in  a  marked  manner  all  special 
industries  which,  while  ministering  to  wide,  regular 
and  decided  needs,  enjoy  some  sort  of  a  monopoly,^ 
natural,  governmental,  or  based  on  vastness  of  capital. 

'  This  law  forms  the  basis  of  Malthusianism  [§  15,  n.  5].  II.  C.  Carey 
supposed  that  in  demonstrating  [iii],  above,  he  had  refuted  the  law,  and 
Malthus's  doctrine  along  with  it.      He  did  neither. 

-  There  i^  a  certain  point  up  to  which  the  greater  the  population  on  a 
given  territory  the  greater  \\.s  per  capita  yield;  and  beyond  which  additions 
to  population  will  ha\  e  the  reverse  effect.  This  may  be  called  the  point 
of '  saturation.' 

«  Cf.  §  y:,,  n.  3. 

*  In  proportion  to  the  firmness  of  the  monopoly,  cost  of  production 
f§§  47,  48]  will  cease  to  fix  prices,  these  rising  higher  and  higher  till 
checked  by  lessened  demand.  But  if  the  products  are  necessaries  of  life 
prices  will  go  very  high  before  demand  will  be  greatly  affected. 


§  35     The  Laror-Force:  Extent 

Ufangoldt,  23-44.     ^!'!^<  l>k.  i,  ch.  x.     Smith  [R.  M.],  Statistics  and  Economics,  pt.  i 
[pubb.  of  Am.  Ec.  Ass'n,  vol.  iii].     Block,  Stattsijite,  ch.  xv.     Co/in,  I,  i-iii. 

To  the  point  of  saturation,^  a  country  or  community 
is  productive,  other  things  being  equal,^  according  to 
the  extent  of  its  labor-force.^  This  is  great  for  any 
period  in  proportion  as  :  i  Population  is  large,  ii  There 
is  excess*  of  births  over  deaths,  iii  Such  excess  is 
maintained  more  by  paucity  of  deaths  than  by  multi- 
tude of  births.^  i\'  Eniiiiration  is  prevented  and  Im- 
niis'ration    encouraged.     \-  The  people  are  hardy  and 


58         THE    RELATIVK    CONDITIONS    OF    PRODUCTION 

toiuperato.  vi  3lalt's,  )cl  not  too  greatly,  outnumber 
females.''  vii  AVorkinj;-  hours  per  day  are  loug-  and 
holidays  int'requeut."  viii  Idle,  hclidcss,  and  iuefli- 
oieut  persons  are  few.^ 

^  §  34.  n.  2. 

-  Bear  this  condition  caiefiilly  in  mind. 

^  Not  population  alone  is  meant,  nor  the  number  of  persons  who  com- 
monly, or  ever,  work;  but  the  tale  of  hours'  works,  say,  in  a  year.  Quality 
is  treated  in  §  36. 

*  This,  with  consideration  iv,  determines  whether  population  is  groici)!^ 
or  not.  A  decreasing  population  is  abnormal,  yet  not  so  rare  :  the  Ameri- 
can Indians  [Andov.  Rev.,  .Vug.,  1SS6J,  the  .South  Sea  Islanders,  the  Irish 
in  Ireland,  the  French  in  certain  districts  of  France.  Smith,  as  above, 
p.  45.  In  Ireland  the  deficit  is  from  emigration,  in  France  from  excess  of 
deaths  over  births. 

"  Since  if  by  the  latter,  much  sickness  is  involved,  calling  from  work 
not  only  the  patients  but  also  their  attendants.  Take  Norway  and  Bavaria. 
B.  has  much  the  larger  birth-rate,  37.3  per  1000  inhabitants  yearly,  to  N.'s 
34.7.  But  it  also  has  very  much  the  more  rapid  death-rate :  30.4  to  N.'s 
18.9  [the  lowest  known]  ;  so  that  its  yearly  increase  per  1000  is  less  than 
half  N.'s,  viz.,  6.9  to  15.8.  France  has  a  very  low  birth-rate,  26.2;  also  an 
exceedingly  moderate  death-rate,  23.9,  only  Belgium  [23.7]  and  Norw.iy 
[18.9]  having  lower.  But  Belgium  has  a  considerably  better  birth-rate, 
23.7,  so  as  to  increase  7.9  per  1000  each  year  to  France's  2.3. 

*  In  the  world  at  large  106  males  are  born  to  lOO  females,  and  the  pre- 
ponderance continues  till  about  the  age  of  puberty.  After  that,  the  numer- 
ical relation  is  reversed,  and  holds  so  through  life.  More  work  commonly 
done  by  women  can  be  done  by  men,  than  vice  versa.  For  women  to  jier- 
form  tasks  fit  only  for  men,  in  time  weakens  the  entire  population.  I'lit 
too  great  excess  of  men  would  mean  slow,  or  no,  numerical  growth. 

^  f.i'.,  the  more  hours  of  work  the  greater  the  production,  provided  energy 
is  maift/ained  [^  36].  But  as  human  endurance  is  limited  the  per  diem 
task  must  be,  and  a  holiday  now  and  then  works  well.  The  observance  of 
.Sunday  is  undoubtedly  an  immenje  aid  to  a  people's  productive  power. 
\Mierc  the  Greek  or  the  Catholic  religion  prevails,  on  the  other  hand,  holi- 
days are  too  numerous  for  utmost  productiveness  [Walker,  Wages,  20]. 

*  Those  who  cannot  or  do  not  siijiport  themselves.  Here  are  usually 
reckoned  all  persons  under  15  and  over  70,  the  remainder  constituting  the 


THE    RELATIVE    CONDITIONS    OF    PRODUCTION 


59 


population  uf  productive  age.  In  France  68.6  per  cent  are  of  this  age;  in 
England,  61.2;  in  Germany,  62.7;  in  the  U.  S.,  59.6.  The  more  slowly  a 
population  increases  the  larger  will  be  its  proportion  of  adults.  Then  there 
are  the  defectives,  constituting,  of  each  100,000 : 


IN 

Blind. 

Deaf  Mutes. 

Idiots. 

Insane. 

Total. 

Italy 

Germany     .... 
Great  Britain .     .     . 
Norway      .... 

Sweden 

Belgium     .... 

France  

United  States .     .     . 

IDS 

87 
98 

136 
80 
81 

83 
96 

It 

57 

92 

102 

tl 
66 

65 
139 
129 
119 
39 
50 
"4 
152 

n 
178 
185 
176 

146 
182 

343 
410 
462 
532 

^6^ 

405 
496 

To  be  added  are  the  idle  aristocracy,  of  Wood  or  of  wealth,  monks, 
nuns,  superfluous  clergy,  soldiers,  and  various  classes  of  servants.  Spain, 
under  Philip  III,  had  988  nunneries  and  32,000  mendicant  monks.  In 
1787  it  had  188,625  religious  persons,  480,589  nobles,  and  280,092  people 
at  service.  Beggars  certainly  increased  the  number  to  a  million,  while  the 
exclusively  productive  classes  then  were  under  2 J  million.  Portugal  in 
1800  had  200,000  religious  to  3  or  3.J  million  inhabitants  [Roscher,  §  54]. 
Sir  W.  Petty,  Pol.  Arithmetic,  ch.  iv,  argues  that  P'rance,  about  1665,  had 
250,000  needless  clergymen,  each  consuming  18  pence  worth  a  day,  which 
he  says  was  triple  what  a  laboring  man  required.  In  contrast  with  these 
cases,  by  the  U.  S.  census  of  1880,  of  the  17,392,099  persons  in  gainful 
callings  here  [being  34.68  per  cent  of  the  entire  population],  only  4,074,238 
were  engaged  in  personal  and  professional  services.  The  others  wrought 
at  agriculture  [7,670,493],  trade  and  transportation  [1,810,256],  and  in 
manufacturing,  mechanical  and  mining  operations  [3,837,112]. 


§  36    The  Labor-Force:  Quality 

Mangoldi,  as  at  §  35.  Mill,  bk.  i,  ch.  vii.  Roscher,  bk.  ii.  Cherbuliez,  bk.  i,  ch.  Y, 
sec.  ii,  iii.  Walker,  Wages,  ch.  Ui.  Brassey,  Work  and  Wages.  Marx,  Capital, 
ch.  XV. 

The  efficiency  of  labor  may  vary  greatly  between  two 
communities  whose  hours  of  work  per  annum  are  equal, 
one  excelling  the  other  in  the  skill,  spirit,  and  vigor  with 
which  the  work  is  done.     Superiority  in  these  traits  will 


OO         THE    RELATIVE    CONDITION'S    OF    PRODUCTION 

turn  upon  :  i  The  native  strong:tli,  enterprise,  and  will- 
power of  the  people.^  ii  Their  habitual  diet,  iii  Their 
moral  development.-  iv  Their  intellij?euce,  natural  and 
acquired.  Industrial  and  technical  training  are  here  of 
incalculable  importance,  yet  not  more  vital,  on  the  whole, 
than  is  general  education.'^  v  Favorable  relation  of 
Avorknien  to  product.  The  self-employed  are  usually 
the  most  diligent  and  earnest,  co-operators  next,  then 
piece-wage-workers,  then  time-wage.'*  High  pay  begets 
zeal ;  low,  apathy.  vi  Reasonable  work-liour.s,  daily 
and  weekly,  neither  too  few  nor  too  many,'"*  fewer  for 
women  than  for  men,  fewest  for  children,  vii  Honora- 
ble political  statu.s^  of  the  laboring  population.  Serfs 
will  out-toil  slaves,  free  men  do  better  still,  those  with 
the  electoral  franchise  best  of  all.  viii  Good  g-overn- 
ment,"  equitable  and  stable  laws,  fiscal  and  other,  just 
and  firm  administration. 


^  In  all  which  prevail  differences  so  great  as  at  first  to  seem  incredible. 
Thus,  the  lifting  power  of  a  Van  Dieman's  Land  native  and  that  of  an 
Anglo-Australian  differ  as  50  to  71  [Batbie,  cited  by  Walker].  Peoples 
near  together  too  are  often  extraordinarily  unlike  in  tliese  qualities.  An 
English  laborer  is  said  to  do  double  the  work  of  a  French.  Some  of  the 
peculiarities  are  inexplicable,  lost  in  the  mystery  of  race-idiosyncrasies  at 
l.irge;  others  traceable  to  national  experiences  and  habits,  favorable  or 
unfavorable  [Mangoldt,  §  25]. 

2  Conscience  favors  (i)  fidelity  to  appointed  work,  (ii)  care  for  mate- 
rials, (iii)  obedience  to  law.  In  all  these  ways  expense  for  oversight  and 
police  is  obviated.  Conscientiousness  also  implies  contentment  and  hope, 
industrial  qualities  of  first  moment.  To  all  co-operative  forms  of  industry, 
to  all  organization  of  labor,  it  is  absolutely  indispensable. 

*  Not  only  acquired  industrial  abilities,  a  form  of  capital  [§§  28,  29],  are 
needed,  but  large,  diversified,  and  widely  distributed  intelligence  whatever 
it^  source.  The  point  is  not  that  this  will  tell  in  the  level  of  a  people's 
enjoyment  —  of  course  true;   but  that  high  productive  efficiency  itself  is 


THE    KELATIVK    CONDITIONS    OF    PRODUCTION 


6l 


concliliimed   upon  it.      On  industrial   education,  sec   Monographs  of  the 
Industrial  Ed.  Ass'n.,  N.  V.  City. 

•»  Roscher,  §  39.     Here  is  a  table  illustrating  this,  adapted  from  H.  C. 
Adams : 


UNDER 


Sl.-ivery, 


The 

Ordin.iry-Wnges 

system, 


The 

Piece-W.iges 

system, 


Profit-Sharing 

or 
Co-operation, 


THE    WORKMAN    HAS 


No  rights,  civil  or  poli-l  No  interest  in  quantity 
tical;  pay  determined  or  qii;ility  of  work 
by  animal  wants.  done;    no    care    for 

material. 


Civil  and  perhaps  po- 
htical  rights,  hut  no 
legal  property  iu  pro- 
duct; pay  dttermined 
before  work  is  done. 

Civil  and  perhaps  po- 
litical rights,  but  no 
legal  property  in  pro- 
duct; pay  determined 
by  work  done. 

Civil  and  perhaps  po- 
litical rights;  also 
property  in  product; 
pay  determmed  by 
work  done. 


No  direct  interest  iu 
quantity  or  quality 
of  work  done,  or  in 
care  for  material. 


Interest    iu     quantity 
only;  otherwise  same 
as  above. 


Direct  interest  in  both 
quantity  and  quality 
of  work  done,  and  iu 
care  for  material. 


CONSEQUENTLY 


Only  low-grade  indus- 
try possible. 


High    technical    skill 
possible,  but  no  guar- 
antee  of    continuous 
orcontented  industry. 


Creater  encouragement 
wliile  work  lasts;  oth- 
erwise same  as  above. 


An  ideal  system  wher- 
ever applicable.  Mar- 
shall, bk.  iii,  ch.  ix. 


That  they  are  usually  Ijetter  paid  in  America  is  among  the  chief  reasons 
why  our  immigrants  achieve  more  here  than  in  their  old  homes.  Not  al- 
wavs  have  they  this  advantage.  We  cannot  infer  it  from  their  mere  nomi- 
nal wages.  On  real  as  distinguished  from  nominal  \v.,  see  under  Wages, 
in  Part  IV. 

'iCf.  §43.  n-5- 

*  Cf.  note  4.  This  too  is  a  most  powerful  cause  of  their  improved  pro- 
ductivity on  coming  hither  from  the  old  world. 

''The  form  of  government  has  much  effect.  See  notes  4  and  5.  Nearly 
or  quite  as  important  is  its  solidity.  Witness  the  industrial  backwardness 
of  Mexico,  Central  America,  Peru,  Turkey.  Laws  should  be  clear,  certain, 
and  not  changed  except  for  good  cause.  They  should  be  just  to  all  men 
and  classes,  partial  to  none.  Judicious  bankruptcy,  currency  and  poor  laws 
are  of  especially  vital  consequence.  Still  more  so  are  those  touching  taxa- 
tion. The  world  is  at  this  moment  probably  suffering  more  from  bad  tax- 
ation than  from  all  other  governmental  ills  together.  And  lastly,  "The  true 
test  of  a  good  government  is  its  aptitude  and  tendency  to  produce  a  good 


62         THE    RELATIVE    CONDITIONS    OF    PRODUCTION 

administration"  [Alexander  Hamilton  J.  In  western  continental  Europe 
from  the  13th  to  the  17th  century  farmers  could  not  keep  sheep  on  account 
of  the  unbridled  rapacity  of  noblemen  and  their  retainers.  Only  in  F^ngland 
was  the  king's  peace  firm  enough.  Hence  England  became  the  great  wool- 
raising  country,  and  could  collect  from  the  continent  an  extensive  export- 
duty  [Th.  Rogers,  Ec.  Interp.  of  Hist.,  9]. 


§  37     Socialism  and  Production 

Gronlund,  Co-operative  Commonwealth.     Also  the  works  listed  at  §  14.     Cokn,  II,  ii. 
Schotnberg,  vol.  i,  107-124.     Hyndmati,  Hist.  Basis  of  Soc'm  in  Eng. 

Partly  a  priori,  partly  from  the  observed  effects  of 
co-operation,  socialists  argue  that  land  and  material 
capital  should  be  made  collective  property,  private 
fee  simple  in  them  being  abolished.  It  is  urged  that 
an  indefinitely  more  copious  production  would  thus 
result,  making  it  safe  heavily  to  bond  the  country,  if 
necessary,  to  pay  off  present  proprietors.  The  im- 
provement is  expected  to  come  in  part  from  a  more 
perfect  organization^  of  industry,  saving  waste  of 
labor  and  of  capital ;  but  mainly  from  the  fresh  hope 
and  couraj^e  which  would  inspire  the  laboring  masses. 
All  wishinjr  work  might  have  it.  Thirst  for  inordi- 
nate wealth  would  cease.  Every  commodity  or  service 
could  be  had  at  precisely  its  cost  2  in  labor.  Society 
would  no  longer  be  rohhed  by  g-ambling  in  stocks 
or  produce,  or  industr}'  palsied  by  fluctuations  in  the 
value  of  money.  Commercial  crises  would  be  un- 
known, and  corporations'  passing  away  would  render 
impossible  the  frauds  of  their  managers.  Henry  George 
and  his  followers  deem  that  the  essence  of  this  benefi- 
cent reform  would  follow  nationalization  of  the  laiid^ 
alone.     It  is  likely  that  the  introduction    of  socialism 


THE  RELATIVE  CONDITIONS  OK  PRODUCTION     63 

wouUl  to  some  extent  quicken  productive  energy,  though 
hy  no  means  in  the  degree  alleged.  But  we  see  insujv 
erable  obstaeles  to  the  launching  of  the  system  as  ad- 
vocated, and  insufferable  evils  sure  to  spring  from  it  if 
launched.  It  would  (i)  dangerously  concentrate  power, 
(ii)  abate  thrift  in  some  while  pronK^ting  it  in  others, 
and  (iii)  reprivss  tliat  marvellous  inventiveness,  enter- 
prise, and  daring-  in  industrial  undertakings  which  only 
the  hope  of  great  personal  profit  will  at  present  induce 
in  men.^ 

'  This  point  naturally  connects  itself  with  the  discussions  of  Chapter  V. 
Co-operatiun  and  the  George  reform  also  both  have  this  double  face :  they 
propose  to  inspire  and  hence  increase  labor,  and  at  the  same  time  to  organ- 
ize or  apply  it  better,  so  that  a  given  measure  of  it  may  amount  to  more 
than  now. 

2  By  a  system  of  labor-time  money  for  the  payment  of  wages,  and  of 
labor-time  labels  on  commodities  to  show  just  how  much  time  in  labor  each 
required  for  its  manufacture  [§  14,  n.  3].  You  worlc,  and  are  paid  in  cer- 
tificates of  labor-time,  having  a  face  value  just  equal  to  the  numl)er  of  hours 
you  have  wrought  if  at  unskilled  labor,  or  twice,  thrice  or  ten  times  that 
number  if  at  skilled.  Each  hour  of  face  value  in  these  tickets  purchases 
at  any  of  the  public  bazaars  commodity  that  it  has  taken  an  hour's  labor 
to  produce.  Money  and  markets  disappear.  The  scheme  is  ingenious 
but  impracticable.      See,  further,  under  Distribution  [Part  IVJ. 

»§  14- n.  I. 

*Cf.  §46. 


CHAPTER   V 
the  relative  conditions,  continued 
§  38     Extraneous  Aids  to  Labor 

Roscher,  bk.  ii.     Bagehot,  Ec.  Studies,  vi.     Mill,  bk.  i,  chaps,  vii-xiii.     Cohn,  I,  i,  It, 
V,  II,  III,  i.     M'CuHocli,  pt.  ii,  sec.  ii. 

Another  immense  and  generic  class  of  the  conditions 
to  production  touches  the  ways  and  means  of  getting 
the  utmost  po.ssible  out  of  a  given  amount  of  labor.^ 
The  principal  circumstances  which  contribute  to  this 
result  may  be  grouped  in  four  clusters  :  (i)  physical  and 
toi>oj2:raphical  advantages,  (ii)  material  capital  in  gen- 
eral, (iii)  labor-helping  and  labor-saving  inventions  in 
particular,  and  (iv)  the  organization  of  labor  itself. 

1  Those  canvassed  in  §§  35-37  have  to  do  with  labor  intrinsically  con- 
sidered, i.e.,  its  quantity  and  its  quality.  We  now  suppose  a  certain  quan- 
tum of  labor,  its  quality  so  or  so,  and  notice  that  it  avails  more  or  less 
abundantly  according  to  the  place  and  manner  of  its  application. 

§  39  Geography  and  Topography 

Cohn,  213-229.     Roscher,  §§  30-37.     Schoenberg,  vol.  i,  198  sqq.     Knies,  §  II. 

A  people's  habitat  is  a  prime  determinant  of  its  eco- 
nomic welfare.  It  will  be  helpful  or  the  reverse  accord- 
ing to :  i  Its  territorial  extent.^  ii  Its  superficial 
aspect,  as  mountainous,  hilly,  or  plain. ^  iii  The  nature 
of  its  earth-cru.st,  as  (a)  soil^  well  or  ill  rewarding  cul- 


THE    KELATlVli    CONDITIONS    OF    PRODUCTION  65 

tivation,  (b)  a  theatre  of  much  or  little  spoutaiioous 
production,  in  lorcsts,  wild  birds  and  animals,^  and 
(c)  a  magazine  of  abundant  or  scanty  raw  materials,  as 
coal,  stone,  and  metals,  iv  The  plentifulness,  location 
and  character  of  its  waters.  Are  sprinjfs,  brooks, 
pouds,  and  lakes  numerous  and  well  distributed  ?  Do 
they  furnish  sufficient  drink,  irrigation,  and  water-power? 
Arc  rivers  many  and  navigable  far  inland?^  Is  sea- 
coast  extensive,  offering  frequent  and  commodious  har- 
bors?^ Are  fish"  in  rich  supply?  v  The  salubrity  of 
its  climate  and  the  favorableness  or  unfavorableness  of 
this  to  production.  Temperature,  rainfall,  humidity, 
and  the  strength  and  regularity  of  winds  have  here 
to  be  taken  into  account,  vi  Its  location  in  relation  to 
the  territories  of  other  peoples,  and  the  character  and 
resources  of  those  peoples. 

1  It  may  at  any  given  time  be  too  great  or  too  small  for  the  people. 

■•2  How  important,  e.g.,  to  the  ease  or  expense  of  building  railways  and 
canals. 

^  FertiHty  and  good  drainage  are  the  main  qualities. 

<  Ostrich-feathers,  ivory,  game  [including  supplies  for  menageries  and 
zoological  gardens],  peltry,  and  guano  are,  in  places,  important  sources  of 
wealth.  The  presence  in  a  country  of  desirable  beasts,  birds,  insects  and 
plants  is  of  great  impoitance,  as  is  the  absence  of  noxious  ones.  In  Russia 
twenty-Hve  miUion  squirrels  are  killed  yearly  for  their  skins  [Mulhall]. 
The  i:ng.  gov't  in  Cyprus  expends  $15,000,000  yearly  in  destroying  locusts. 
Block  Island  has  the  great  advantage  in  poultry-raising  that  no  foxes, 
skunks,  or  weasels  are  found  there. 

''Xor  do  railroads  strip  this  item  of  consequence.  It  is  also  of  much 
moment  whether  the  land  is  subject  to  floods  or  not. 

6  Note  England's  advantage  herein  over  the  Continent.  Its  harbors  are 
not  only  thick,  but  well  situated.  Tides  and  the  C'.ulf-stream  mostly  sweep 
past  them  instead  of  straight  in,  which  so  fills  up  those  beyond  the  Chan- 
nel. The  economic  influence  of  the  C.u/f-stream  on  the  Atlantic  coast  of 
Europe  is  obvious  but  immeasurable. 


66         THE    RELATIVE    CONDITIONS    OF    PRODUCTION 

"The  late  Spencer  F.  Baird  regarded  an  acre  of  ocean  cciual  to  six  of 
land  in  ability  to  produce  food  for  man.  Seals  and  porpoises  as  well  as 
fish  might  be  mentioned  among  the  valuable  gifts  to  us  from  the  sea. 

§  40     Material  Capital  in  General 

Maitgoldt,  §§  30,  31.     Mill,  bk.  i,  chaps,  v,  vi,  xi.     Ad.  S/iiilk,  bk.  ii.     Roscher,  §§  41 
sqq.     Bagehot,  Ec.  Studies,  vi.     Rae,  Prin.  of  P.  E.  [Bost.,  1830],  123  sqq. 

Speaking  broadly,  production  will  be  large  in  pro- 
portion as  material  capital  is  plenty.^  Laborers  must 
have  food,  clothing,  shelter,  working-gear  and  stock. 
Labor-force  not  supplied  with  these  becomes  a  burden, 
and  labor-force  can  iiiercasc  only  as  these  multiply. 
Mere  abundance  for  present  needs  is  not  enough. 
Healthy  production  requires  an  actual  or  potential  sur- 
plus against  emergencies.  Capital  in  the  form  of  roads, 
canals,  dikes,  piers,  and  public  buildings  may  aid  pro- 
duction through  hundreds  and  thousands  of  years. ^ 
The  proportion,  in  capital,  of  kind  to  kind  is  hardly 
less  important  than  bulk.  Aside  from  cases  of  specific 
over-production,  either  fixed  or  circulating  capital  may 
exist  in  vicious  disproportion-'^  to  the  other.  Prepon- 
derance of  circulating  is  the  lesser  danj^er,  owing  to 
the  larger  possibility  of  adapting  it  to  a  variety  of  uses.^ 

1  On  intellectual  capital  as  a  condition  of  production,  see  §  36,  iv,  and 
D.  3.  The  richest  importation  the  U.  S.  ever  made  came  encased  in  Samuel 
Slater's  head.  The  present  §  is  to  be  brought  into  relation  with  §§  29, 
30,  ante.  In  those  §§  our  thought  was  primarily  a  static  one.  Here  we 
have  in  view  the  dynamics  of  production. 

2  Though  most  capital,  however '  fixed  '  [§  29,  n.  7],  is  ephemeral.  The 
average  life  of  an  English  locomotive,  costing  /'2,ooo,  is  only  15  years,  no 
subtraction  being  made  for  repairs.  The  average  total  run  is  200,000 
miles  [Mulhall].  American  machines,  the  term  being  reduced  according 
to  amount  of  repairs,  average  to  live  but  5  07  years.  The  cost  is  ,f.8,000. 
A  box  car  costs  $450,  lives  9.05  years;  a  flat  lives  8.15  years  [W.  C.  Fisher j 


THE  RKLATIVE  CONDITIONS  OF  PRODUCTION     6/ 

3  The  main  cause  of  the  hartl  times  in  1857  was  probably  the  locking 
up  of  too  much  capital  in  the  form  of  new  railways. 
■•  I.e.,  it  is  less  specialized  [§  29,  n.  6]. 


§  41     Machinery 

Ad.  Smith,  bk.  i,  chaps,  i-iii.  Cherbuliez,  bk.  i,  ch.  vi.  Rosc/ier,  '  Machinery,' 
ill  I.alor;  nlso  Ansichtoh  etc.,  vol.  ii.  Mangotdt,  §  36.  Senior,  3  Lcctt.  on 
Wages,  etc.  Schoenberg,  vol.  i,  2i3  sqq.  Marx,  Capital,  ch.  xv.  Cossa,  Eie- 
menti,  31. 

The  ability  of  tools  and  iii.struments^  to  help  pro- 
duction  is  inlinitely  multiplied  by  harnessing  to  them 
some  agent  with  siiiK;rhuiiuiu  power,  as  brutes,^  water, 
steam,  or  electricity.  Machines  then  result,  which 
(i)  make  possible  much  production  not  so  without 
them,'^  (ii)  in  forms  of  production  intrinsically  possible 
without,'*  enormously  spare  the  health,  strength,  and 
morale '5  of  laborens,  (iii)  in  other  cases  render  products 
better,  cheaper,  and  vastly  more  plentiful.^  Through 
these  advantages,  in  spite  of  temporary  misfortunes^ 
often  occasioned  by  the  introduction  of  it,  machinery 
becomes  an  inestimably  valuable  auxiliary  to  labor  in 
creating  wealth. 

1  On  the  difference  between  tools,  instruments,  and  machines,  §  29,  n.  i. 

^  The  first  cotton  mills  in  America  were  driven  by  hi^rses  or  oxen. 

^  P.^rtly  by  the  lineness  and  regulaiity  of  their  work,  as  mowers,  reapers 
and  steam  ploughs;  partly  by  sheer  power,  as  in  heavy  hauling,  lifting  and 
pumping.  Sometimes  their  force  is  not  beyond  what  united  human  effort 
might  yield,  but  has  to  be  applied  in  a  place  [a  mine,  e.g.'\  where  not 
enough  men  can  'get  hold.'  But  the  earth's  population  were  insufficient 
to  do  a  tithe  of  the  work  w  hich  machinery  now  performs.  The  world's 
horse-power  in  steam  alone  aggregated  [Midhall]  in  1880,  28,952,000. 
Each  horse-power  being  equal  to  12  men's  ]iower,  we  have  steam  doing 
the  work  of  347,424,000  men.  But  engines,  furnishing  power  alone,  repre- 
sent but  a  small  part  of  the  work  of  machinery.     Competent  estimates 


68         THE    RELATIVE    CONDITIONS    OF    PRODUCTION 

regard  machinery  as  doing  in  Great  Britain  alone  the  work  of  700,000,000 
men,  a  number  probably  in  excess  of  the  entire  laboring  population  of  the 
globe.  Cf.  n.  4.  Notice,  further,  that  machinery,  like  labor  [§§  43,  44], 
gains  in  efficiency  by  organization,  piece  standing  in  rightly  complementary 
relations  to  piece. 

<  A  sewing-machine  does  the  work  of  12  women.  A  Boston  'boot- 
maker,' with  one  workman,  makes  300  pairs  of  boots  daily.  In  1880,  300 
of  these  machines  were  at  work  in  various  countries,  and  turned  out  150 
million  pairs.  Glenn's  California  reaper  will  cut,  thresh,  winnow  and  bag 
the  wheat  of  60  acres  in  24  hours.  The  Hercules  ditcher  removes  750 
cubic  vards  of  clay  per  hour.  The  Darlington  borer  enables  one  man  to 
do  the  work  of  7  in  tunnelling,  and  reduces  the  cost  by  two-thirds  [Mul- 
hall].  One  boy  with  a  knitting  machine  does  as  much  work  as  100  per- 
sons could  100  years  ago. 

^  It  imbrutes  as  well  as  kills  off  men  to  do  work  which  constantly  tasks 
their  physical  power  to  its  utmost.     Cf.  §  35,  n.  6. 

6  Capital  suffers,  as  each  new  piece  renders  more  or  less  old  property 
worthless  —  a  process  continually  going  on.  Usually,  of  course,  the  new 
gear  soon  more  than  recoups  this  loss.  Much  sadder  is  the  displacement 
of  labor  which  an  important  novelty  in  machinery  always  effects.  Laborers 
no  longer  young  are  ruined  for  life,  their  hard-earned  skill  going  for  noth- 
ing. Even  the  young  suffer  painfully.  No  state  has  ever  yet,  as  Sir 
James  Steuart  advocated,  sought  to  make  good  these  losses.  Yet  after  all, 
how  mad  to  prohibit  machinery  I  Nor  does  it  on  the  whole  advantage 
the  capitalist  more  than  it  does  the  poor. 


§  42     Unembodied  Invention 

M'Culloch,  pt.  ii,  sec.  iv. 

By  no  means  all  special  ideas,  helpful  economically, 
thus  take  form  in  tools,  instruments  or  machines.^  An 
immense  proportion  of  the  most  valuable  applied  science 
does  not.  We  instance:  i  Chemical  information  and 
skill  in  washing,  dyeing,  tanning  and  the  like.^  ii  Geo- 
lo},Mcal  knowledge  of  leads,  layers,  etc.,  used  to  guide 
mining  operations,  iii  Nearly  the  whole  science  of 
engiiieerliif?  in  its  various  departments^  and  branches. 


THE    RELATIVE    CONDITIONS    OF    PRODUCTION  69 

iv  Science   as   utilized   in  ajfriculturc,  stock-breediiifjT, 

and  the  projiaj^ation  of  fishes,  v  That  A-ast  body  of 
practical  maxims,  the  growth  of  its  whole  past,  which 
exists  in  every  department  of  human  industry,  touching 
the  most  efficient  conduct  thereof. 

1  A  weighty  truth,  which  economic  writers  have  too  much  overlooked. 
Connaissaftccs  of  this  kind  really  form  one  of  the  main  departments  of 
capital.  Observe  that  what  we  here  iliscuss  is  not  the  same  as  the  intelli- 
gence mentioned  in  §  36,  iv,  though  the  two  are  closely  related. 

-  "  Mr.  Walter  Weldon,  chevalier  of  the  Legion  of  Honor,  who  died  in 
England,  Sept.  20,  18S5,  was  one  of  the  five  men,  and  the  only  foreigner, 
whom  the  French  Societe  d'Encouragement  has  deemed  worthy  of  its 
grand  medal.  To  him  we  are  indebted  for  the  process  by  which  alone 
bleaching  powder  is  now  made.  The  peroxide  of  manganese  employed  to 
liberate  chlorine  from  the  hydrochloric  acid  obtained  in  the  first  step  of  the 
soda  manufacture  was  formerly  thrown  away.  By  a  very  simple  process, 
Mr.  Weldon  recovered  from  90  to  95  per  cent  of  the  manganese  in  a  form 
available  for  renewed  use,  and  thus  saved  nearly  £(i  on  every  ton  of  bleacli- 
ing  powder  made,  quadrupled  the  total  manufacture,  made  the  industrial 
world  the  richer  by  some  three-quarters  of  a  million  sterling  per  annum, 
and  as  the  French  chemist,  J.  R.  Dumas,  publicly  observed,  cheapened 
every  sheet  of  pajier  and  every  yard  of  calico  made  in  the  world." 

'  Civil,  mechanical,  electrical,  marine,  mining.  Each  has  its  numerous 
Ijranches.  Cf.  Annalcs  des  Fonts  et  Chanssees,  1887,  2,  p.  389  [on  org'n 
of  railway  train  movement  in  U.  S.];  and  p.  522  [on  use  of  certain  waste 
salts  for  clearing  streets  from  ice]. 


§  43     The  Organization  of  Industry 

tfarshall,  bk.  i,  chaps,  vii,  viii.  Mangoldt,  §§  28,  29.  Roscher,  §  56;  Ansichten, 
vol.  ii.  Mt'll,  bk.  i,  ch.  viii.  George,  Soc.  Problems,  ch.  i.  Schoenberg,  vol.  i, 
203  sqq. 

System  is  imparted  to  labor  in  two  ways  :  I  Compo- 
sition, whereby  several  persons,  uniting  either  contem- 
poraneously^ or  successively-  in  the  same  acts,  accom- 
plisli  more  than  they  could  singly.      II    Division,  which 


yo       thp:  relative  cuxuitions  of  production 

secures  the  same  advantage  by  assigning  to  different 
parties  different  portions  of  one  and  the  same  greater 
or  smaller  task.  This  distribution  is  partly  sponta- 
neous,^ partly  the  result  of  conscious  i)urpose.  It  has 
three  phases  :  i  Ijocal,^  each  nation  or  vi<'inity  engaging 
in  the  industry  giving  it  the  greatest  relative  advan- 
tage as  to  climate,  raw  material,  markets,  etc.  ii  Gen- 
eric, every  several  body  of  producers  busied  with  the 
sort  of  work  best  adapted  to  its  i)0wers.^  iii  Personal, 
the  division  of  labor  in  the  narrower  sense,  each  individ- 
ual doing  the  particular  tiling  which  he  can  do  most 
easily  and  perfectly." 

1  As  in  lifting  a  heavy  weight,  loading  logs,  jiulling  stumps,  and  other 
jobs  for  which  farmers  "  change  works."  In  many  such  cases — we  add 
proof-reading  to  the  number  —  the  work  could  not  he  done  at  all  except 
co-operatively.  In  any  kind  of  toil  the  union  of  several  persons  lends  a 
peculiar  inspiration,  which  is  usually  worth  taking  into  account. 

-  As  where  two  or  three  men  hammer  the  same  hot  rivet,  the  better  to 
head  it  ere  it  cools.  Where  three  [even  five  may  so  combine]  pound  on 
the  same  drill,  division  of  labor  also  comes  in.  The  drill  goes  no  faster 
than  with  the  same  number  of  blows  from  one  man,  but  the  holder  of  it  is 
worked  to  better  advantage.     .See  next  §. 

*The  local  phase,  at  least  so  far  as  it  pertains  to  nations,  is  mostly  spon- 
taneous. It  is  only  minor  and  specific  businesses  which  they  formally 
adopt  by  legal  encouragement.  The  establishment  of  quinine  production 
in  India  through  the  agency  of  the  British  government,  and  of  beet-sugar 
production  in  France,  Germany  and  Austria,  are  examples.  Subordinate 
districts  adopt  industries  much  more  easily,  and  often,  —  now  at  a  loss, 
now  to  their  great  benefit.  In  agriculture,  experiment  with  this  in  view 
has  yet  to  go  much  farther.  It  is  not  at  all  to  be  assumed  that  the  crops 
grown  from  time  immemorial  in  a  given  locality,  are  the  only  ones  suited 
to  it. 

*  Thus  London,  Manchester,  Liverjxjol,  and  the  wheat  section  of  Amer- 
ica supplement  each  other,  forming  an  industrial  group,  much  as  do 
foreman,  cutters,  crimpers,  lasters,  heelers,  etc.,  in  a  shoe  factory.  Cf. 
Roscher,  §  57.     Europe  and  Asia  co-operate  in  the  same  way.     More  still 


THE    RELATIVE    CONDITIONS    OF    PRODUCTION  7 1 

the  Tonid  and  Temperate  Zones.  The  importance  of  this  international 
division  in  labor  will  l)c  shown  under  Exchange.  Tarit'fville,  Conn.,  was 
found  to  be  superior  to  Thompsonville  as  a  site  for  carpet  manufacturing, 
because  the  water  there  made  faster  dyes.  The  special  e.xcellence  of  West 
English  cassimeres  is  said  to  be  due  to  a  peculiar  humidity  of  the  air,  ren- 
dering the  fibre  tractable  while  wrought. 

''  Heredity  of  industrial  tact  and  taste  is  as  valuable  as  it  is  striking. 
English  woollen  spinners  and  weavers  inherit  a  pronounced  adaptability 
for  their  trade.  So  the  silk  workers  of  France,  and  the  fishermen  of  Nova 
Scotia. 

"  This  is  the  form  discussed  in  next  §. 


§  44     The  Same  in  a  Special  Aspect 

Plato,  Rep.,  bk.  ii.     Ad.  Smith,  bk.  i,  chaps,  i,  it  [cf.  in  Playfair's  Ed.,  supp.  ch.  iii]. 
Roscher,  §  58,  and  the  other  authh.  cited  at  last  §. 

The  economic  benelits^  springing  from  the  personal 
division  of  labor  are  extraordinary,  and  have  been  well 
discussed  in  nearly  all  the  books  since  Adam  Smith. 
They  consist  in  :  i  Laborers'  improved  dexterity.^  ii  A 
better  distribution  of  abilities*'^  among  the  various  de- 
partments of  the  work,  iii  Inventiveness  and  inven- 
tions.^ iv  Economy  of  time,  employing  the  least  pos- 
sible in  changing  tools  and  j^lace.  v  Prevention  of 
waste  in  stock,^  whether  raw  material  or  fixed  capital, 
vi  Having-  of  interest*^  and  insurance. 

^  Ad.  Smith's  favorite  illustration  [bk.  i,  ch.  i]  is  pin-making.  It 
involved  in  his  time  about  iS  distinct  operations,  each,  in  the  best  works, 
performed  by  distinct  hands.  He  estimated  that  the  product  by  this  dis- 
tribution was  from  240  to  4S00  times  as  great  as  if  each  workman  had 
wrought  separately  and  with  no  special  education  for  the  trade.  Cf.  Perry, 
Elements,  129. 

-  A  blacksmith  not  specially  used  to  nail-making  turns  out  200-300  a 
day;  one  used  to  it,  yet  with  his  hand  out  through  other  work,  800-IOOO; 
a  boy,  even,  who  has  never  done  anything  else,  2,300  [Ad.  Smith].  Each 
pupil  can  multiply  instances. 


^2         THE    RELATIVE    CONDITIONS    OF    PRODUCTION 

"  Skilled  laborers  need  be  had  only  for  work  which  they  alone  can  do, 
simpler  parts  being  left  to  apprentices  or  green  hands.  In  making  needle- 
points chiKlren  beat  adults. 

••  Though  Arkwright  began  as  a  barber,  and  Cartwright,  the  inventor  of 
the  power-loom,  was  a  clerg)man,  far  the  larger  part  of  the  inventions 
which  have  blessed  the  world,  were  worked  out  by  mechanics.  To  the 
cunning  stored  in  the  steam-engine  of  to-day.  Watt  is  hardly  the  thousandth 
part  contributor.     The  rest  is  mainly  from  unknown  men. 

5  As  a  rule,  waste  of  material  will  be  small  in  proportion  to  the  rapidity 
with  which  it  is  turned  into  product.  Buildings,  machinery,  tools,  and  all 
fixed  capital  would  of  course  better  be  worn  out  in  productive  use  than  by 
decay.  A  mill  with  never  so  few  hands  must  have  a  full  complement  of 
gear.  This  is  a  strong  argument  for  long  work  hours,  and  for  night  work, 
provided  orders  are  heavy  enough. 

^  This,  as  a  consideration  separate  from  the  preceding,  relates  to  the 
materials  used  in  production.  The  shorter  this  process  the  less  time  is 
money  invested  in  them  and  the  less  time  have  they  to  carry  insurance. 


§  45     Evils  and  Limitations 

Roscher,  §§  59  sqq.     Mill,  bk.  i,  ch.  viii.     Ad.  Stnith,  bk.  i,  ch.  iii. 

The  division  of  labor,  carried  to  such  an  extreme  in 
the  monster  undertakings  of  recent  decades,  has  its 
dark  .side.  The  workman's  life  lack.s  its  old  divcr.sity.^ 
Narrow,  it  cannot  but  be  nionotonou.s  and  irksome. 
The  man  is  more  dependent  on  his  single  art,  possess- 
ing at  once  less  ready  knowledge  and  less  ability  to 
acquire.  In  two  ways  the  system  favors  strikes.  By 
making  laborers  clannish  it  fosters  union  among  them, 
while  it  gives  a  few  power  to  stop  the  work  of  all.  For- 
tunately there  are  activities  which  only  to  a  limited 
extent  allow  labor  to  be  divided,  the  check  lying  for 
some  in  the  nature  of  the  business,^  for  others  in  a 
eontracted  market.^  In  all  trades  whatever,  organi- 
zation is  repressed  by  lack  of  capital,^  and  ceases  to  be 


THE    KKLATIVE    CON'DITIONS    OF    PKODUCTIOX  73 

profitable^   when   in   compass   and   complexity    it  tran- 
scends available  supcrint<Mi<linji'  a]>ility. 

^  All  have  heard  the  proverb  that  in  Lynn,  Mass.,  centre  of  the  ladies' 
shoes  industry  for  this  country,  not  a  shoemaker  is  to  be  found. 

-  In  agriculture,  e.g.,  the  work  manifestly  cannot  be  parcelled  out 
among  ploughmen,  herdsmen,  reapers,  mowers,  choppers,  etc.,  but  each 
h.intl  has  commonly  to  do  more  or  less  at  all  these.  House-building  and 
painting  in  cold  latitudes  present  the  same  difficulty.  Roscher  lays  down 
the  principle  that  the  possibility  of  dividing  labor  bears  exact  proportion 
to  the  degree  in  which,  in  the  different  kinds  of  industry,  labor  contributes 
to  production. 

^  Read,  best.  Ad.  Smith,  as  above.  Cabinet-making  is  intrinsically  sus- 
ceplit)le  of  great  division,  yet  in  a  country  place  no  one  can  live  In'  this 
craft  alone.  The  cabinet-worker  must  here  be  carpenter,  joiner  and  wood- 
carver,  too.  Every  country  blacksmith  is  also  copper-smith  and  lock- 
smith. Notice  how  cheap  transportation,  by  turning  many  little  markets 
into  one  of  large  si/.e,  makes  possible  much  new  division  of  labor.  For- 
merly the  furniture,  coffins  and  wagons  for  every  village  had  to  be  made 
there,  usually  by  the  same  man,  so  meagre  was  the  demand  for  each.  Now 
those  wares  are  carried  thousands  of  miles,  and  even  coffins  can  be  gotten 
up  in  such  numbers  under  one  roof  as  to  admit  of  the  most  perfect  division 
of  abilities.     Frontier  settlements  still  show  the  old  order  of  things. 

*  For  plant  and  stock.  So  far  as  thorough  oversight  can  be  secured, 
there  is  advantage  in  large  undertakings,  even  in  the  industries  referred  to 
in  n.  2,  above ;  but  if  this  condition  fails,  smaller  establishments,  though 
missing  many  of  the  advantages  which  fuller  organization  would  give,  will 
lead  [Cherbuliez,  vol.  i,  120  sqq.J. 

''  I.e.,  ceases  to  be  truly  productive.  But  a  trust  or  ring  which  has  a 
monopoly  may,  though  far  too  large  to  be  economically  managed,  and 
hence  not  a  help  to  general  production,  still,  by  raising  prices,  be  verj' 
profitable  for  those  interested.     Cf.  §  21,  iv,  (2). 


§  46     The  Form  of  Undertaking 

Cossa,  Elementi,  H,  vi.     Mill,  bk.  i,  ch.  ix.     Weeden,  Soc.  Law  of  Labor,  30.    Walker, 
P.  E.,  244.     Matigoldt,  §§  33-35.     Schoenberg,  vol.  i,  220  sqq.     Cohn,  447-87. 

Very  many  goods  are  produced  by  the  identical  per- 
sons or  families  who  are  to  consume  them  :  numerous 


74         THE    RELATIVE    COXDITIONS    OF    PRODUCTION 

others  for  exchange,  but  in  petty  ways.  Respecting 
the  remainder,  intended  for  exchange  on  a  large  scale, 
it  is  important  where,  for  any  given  Hne  or  centre  of 
production,  the  sovereign  directorship  and  risk  ^  are 
located.  Their  seat  may  be:  i  In  the  state  —  pubhc 
co-operation.^  ii  In  isolated  grroups  or  partnerships  ^ 
of  men,  working  unitedly  and  on  a  level  one  witli 
another  —  private  co-operation,  iii  In  individual  un- 
dertakers or  contractors  —  the  single  entrepreneur  sys- 
tem, iv  In  joint  stock  companies  as  undertakers  — 
the  collective  entrepreneur  system.  Each  of  these  is 
useful  in  special  fields ;  neither  will  do  for  the  whole 
range  of  industry.  There  are  species  of  production 
which  the  state  must  assume,  and  its  function  in  this 
way  enlarg-es  with  the  growth  of  civilization.*  Co- 
operation works  excellently  where  keenest  oversight 
and  large,  intricate  combinations  are  not  indispensable.^ 
Single  undertakers  secure  to  the  superintendence  the 
maximum  of  diligence  and  energy,  but  lack  capital 
for  colossal  works.  For  these,  stock  associations  are 
best  fitted,  and  the  mammoth  enterprises  of  the  age 
fall  more  and  more  to  them.  With  their  endless  capital 
they  can  command  the  first  quality  of  superintending 
talent,  while  utilizing  to  the  utmost  the  division  of 
labor.  But  to  this  Titan  form  of  undertaking  attach 
certain  evils  :  i  Irresponsibility  of  managers  to  stock 
holders.  2  Baneful  political  inlluence.  3  Tendency 
to  monopoly,  making  their  own,  and  denying  to  the 
public,  the  benefits  of  cheapened  production.^ 

1  These  being  the  chief  elements  in  the  function  of  "  undertal<er,"  en- 
trepreneur, or  nrKldic-man — the  man  who  harnesses  lalior  and  capital 
together  to  the  work  of  production.     We  second  the  example  of  H.  C. 


THE  ki:l.\tive  conditions  of  production        75  / 

Adams  in  effort  to  restore  the  word  "  undertaker  "  to  its  good  old  Enjjlish 
and  American  use  as  tiie  exact  equivalent  of  entrepreneur,  Unternehmer, 
and  imprenditore  [Alexander  Hamilton,  Report  on  Manufactures].  '  Cap- 
italist' is  too  indefinite,  meaning  also,  and  usually,  the  o7oner  oi  capital, 
which  the  undertaker,  as  such,  is  not.     .See,  further,  in  Part  IV. 

-  Which,  made  general,  would  be  socialism  [§§  14,  37]. 

^  Covering  private  socialistic  and  communistic  societies,  co-operators, 
and  partnerships.  A  partnership  is  in  essence  nothing  but  a  case  of  co- 
operation, though  the  t«  o  are  usually  separated.  Co-operation  is  destined 
to  enlarge  its  scope,  greatly  to  the  aid  of  production,  but  not  to  become 
the  general  form  of  undertaking.  Even  had  it  enough  capital  —  it  might 
command  much — it  lacks  the  concentration  of  energy  and  the  industrial 
generalship  required  for  enterprises  of  much  magnitude.  See  §  36,  n.  4; 
Marshall,  bk.  iii,  ch.  ix;  Mill,  I,  viii;  Holyoakc,  Hist,  of  Co-op'n;  Yves 
Ciuyot,  bk.  iv,  ch.  ix;  Walker,  Wages,  ch.  xv;  Quar.  Jour.  Econ.,  vol.  ii, 
210,  446. 

■*  Professor  Wagner  has  shown  this.     Lehrbitch,  vol.  i,  §§  1 71-178. 

«  See  §  45,  n.  5. 


CHAPTER   VI 

cost  and  consumption  in  production 

§  47     Metaphysical  Cost 

Cairnes,  Leading  Principles,  pt.  i,  ch.  iii.  Sidgn'ick,  201  sqq.  yevojis.  Theory,  159 
sq.  Macleod,  Econ.  Philos.,  331.  Marshall,  bk.  ii,  ch.  xiii.  Bagehoi,  Ec.  Studies, 
vii.     Macvane,  Quar.  Jour.  Econ.,  vol.  i,  481  sqq. 

The  real  cost  of  any  product  con.sists  in  the  effort 

or  sacrifice  required  to  obtain  it.  '  It  represents  what 
man  parts  Avith  in  the  barter  between  him  and  nature.'^ 
Three  elements  compose  it  :  i  Labor,  this  lieing  im- 
portant to  the  result  in  j^jroportion  to  i)  time,  and 
2)  intensity,  ii  Abstinence,  this  being  necessary  in 
order  to  the  supply  of  capital^  for  the  support  and 
utilization  of  the  labor.  Abstinences  can  be  compared 
in  the  respects  of  duration  and  temptation,  the  latter 
arising  from  the  power,  as  subjectively  viewed,  of  the 
wealth  abstained  from  to  gratify,  and  in  lliis  sense  cor- 
responding to  the  amount^  of  that  wealth.  Labor- 
exertion  is  more  an  individual  experience  than  absti- 
nence, which  is  largely  social.^  iii  Ilisk,  a  hardship 
inseparable  from  the  exercise  of  either  labor  or  absti- 
nence.^ The  co.st  of  a  product  as  thus  estimated  is, 
f)f  course,  a  highly  indefinite  notion,  and  different  costs 
are  but  roughly  commensurable.'^  Infinite  complexity 
is  added  to  the  indefiniteness  if  we  attempt  to  trace 
cost   in    any  case   to   its   ori^innl    <'len»<'nts ;  since  the 


COST    AND    CONSUMPTION    IN    PRODUCTION  "J"] 

sacrifice  attending  this  or  that  piece  of  production  de- 
pends upon  the  developnu'iit  of  man  aiwl  the  arts  at 
the  time,  which  in  turn  depend  on  an  unthinkable  scries 
of  similar  sacrifices,  reaching  back  to  the  beginnings 
of  human  history.  The  ultimate  cost  of  any  particu- 
lar item  of  wealth,  therefore,  wholly  defies  computation.^ 

1  Cairnes,  57.  In  this  chapter  Cairnes  shows  how  superficially  Mill 
expounded  cost  of  production  by  resolving  it  into  wages  and  profits 
[interest].  Such  an  analysis  is  truthful  enough  from  the  business  man's 
point  of  view,  l)ut  does  not  bring  to  notice  the  final  consideration  which 
society  pays  for  wealth.  Comparing  the  next  §  with  this,  one  sees  how  far, 
and  how,  Cairnes  and  Mill  may  be  reconciled  upon  the  perplexing  topic 
before  us. 

2  See  §  30,  n.  2.  Did  men  use  at  once  the  results  of  all  labor,  there 
would  obviously  be  no  capital.  It  is  harder  to  see  that  the  abstinence 
demands  effort.  Yet  it  does.  Witness  the  poverty  of  savages,  for  lack 
of  the  self-control  which  this  effort  requires.  Very  wealthy  persons  save 
with  a  minimum  of  sacrifice,  sometimes,  perhaps,  with  none  at  all.  But  in 
society  as  a  whole,  wealth  cannot  be  maintained  without  it. 

3  Macvane,  as  above,  thinks  that  Cairnes,  in  asserting  abstinence  to  be 
measurable  [in  part]  by  the  "quantity  of  wealth  abstained  from,"  defines 
in  a  circle,  since  the  "  quantity  of  wealth  "  is  gauged  by  its  value,  which, 
in  turn,  depends  on  cost  of  production,  the  very  thing  which  C.  is  seeking 
to  define,  and  on  wages  and  profits,  which,  C.  declares,  are  not  elements  in 
cost.  The  point  is  ill  taken,  as  C.  means  the  "  amount  of  w.,"  only  as 
subjectively  estimated.  But  Cairnes,  unwilling  to  let  go  the  conception  of 
normal  value  [see  this  topic  in  Part  II :  cf.  n.  i,  above],  does  err  in  repre- 
senting the  measurement  which  is  possible  here  as  more  definite  than  it 
can  in  fact  be  made. 

*  Risk  is  a  separate  thing  from  abstinence.  Abstinence  would  call  for 
some  exertion  even  were  we  absolutely  sure  of  enjoying  the  fruits  of  it  by 
and  by. 

^  Still,  Sidgvvick  notwithstanding,  they  are  commensurable.  Even  the 
socialists'  proposal  to  reduce  hours  of  skilled  labor  in  its  various  grades 
to  so  many  more  hours  of  ordinary  labor,  treating  this  last  as  a  common 
denominator  for  all  labor,  is  not  absurd  in  nature,  though  measurements  of 
this  sort  would  be  painfully  general. 

^  §  27,  n.  4.     Mill,  bk.  i,  ch.  ii,  §  I. 


78  cost  and  consumption  in  troductiox 

§  48     Mercantile  Cost 

Mill,  blc.  iii,  chaps,  iv,  vi.     Also  same  authh.  as  at  §  47. 

Corresponding^  in  a  general  way  to  the  metaphysical 
cost  of  a  thing,  and  furnishing  for  moderate  lengths  of 
time  a  tolerable  measure  of  tliis,  is  the  expense  to  which 
a  given  undertaker  is  put  in  producing  that  thing. 
Such  expense  may  be  named  the  mercantile  cost. 
Aside  from  the  relatively  minute  elements  of  taxation 
and  rent,  its  components  are  (i)  the  wages  of  the 
necessary  labor,  and  (ii)  interest  on  the  necessary  capi- 
tal. Either  of  these  two  factors  remaining  constant, 
the  mercantile  cost  of  the  production  in  question  varies 
closely  with  the  variations  of  the  other,  i  For  wages, 
the  actual  expense  will  be  determined  by  i)  the  rate,^ 
as  high  or  low;  2)  tlie  material-' used  in  payment,  as 
dear  or  cheap  ;  and  3)  the  efficiency*  of  the  labor,  as 
small  or  great,  ii  For  interest,  the  outlay  will  be  fixed 
by  i)  the  rate,  higher  or  lower;  2)  the  period,^  longer 
or  shorter,  needed  for  turning  the  capital  into  product ; 
and  3)  the  speed,  greater  or  less,  at  which  the  capital 
deteriorates  during  this  process. 

^  The  two  costs  must  correspond,  for  the  undertaker  has  no  means  of 
securing  the  production  but  to  give  to  the  laljorer  on  the  one  liand,  and  to 
the  capitalist  on  the  other,  a  remuneration  sufficient  to  induce  in  each  the 
needed  sacrifice.  For  the  same  reason  one  cost  vaguely  measures  the 
other  for  any  limited  period.  But  with  less  and  less  exactness  the  longer 
the  time,  since,  as  the  industrial  arts  improve,  the  metaphysical  cost  is  less 
and  less  in  proportion  to  the  total  product,  while  mercantile  cost  keeps 
pace  with  product  [Cairnes,  49  sq.]. 

-  To  see  correctly  the  bearing  of  these  six  main  factors  in  mercantile 
cost,  it  is  well  to  consider  each  by  itself  and  suppose  no  change  for  the 
time  in  the  other  five.     Thus,  provirled  wage-matcrinl,  efficiency  of  labcjr, 


COST    AND    CONSUMPTION    IX    I'KOnUCTION'  79 

rate  of  interest,  turning-period  and  rapidity  of  deterioration  are  the  same 
in  two  (iirrcrcnt  cstalilishinents,  Imt  the  rate  of  wages  the  higher  in  one, 
production  will  be  the  costlier  in  that  one.  So  with  every  other  of  the  five 
elements.     See  n.  4,  below. 

^  Depreciated  paper,  silver,  gold,  or  paper  at  par  with  silver  or  with 
gold.  The  principle  holds  also  if  payments  are  made  barter-wise,  or  in 
products.  The  pupil  will  learn  in  Part  III  that  the  standard  monetary 
unit  itself,  whether  it  be  of  gold  or  of  siher,  can  suffer  decided  variations 
in  value. 

••  What  was  said  in  note  2  does  not,  of  course,  assert  that  low  wages 
necessarily  imply  cheap  production,  for  the  efficiency  of  high-wage  labor 
may  lie  and  very  often  is  enough  greater  to  render  that  the  cheaper. 

'•'  The  aging  of  liquors  reciuires  in  this  trade  a  long  investment  of  capi- 
tal. Old  brandy  w  ill  bring  three  times  as  much  as  new.  Whiskey  is  often 
kept  seven  or  eight  years,  and  is  thought  to  improve  constantly  through 
even  twenty.  Manufacturers  esteem  it  a  great  hardship  that  they  must  pay 
the  excise  on  it  when  three  years  old,  since  the  aging  is  in  their  view  part 
of  the  process  of  production.  The  same  question  (when  does  production 
end?)  arises  in  respect  to  certain  other  articles,  e.g.,  cigars  and  cheese, 
which  improve  by  mere  keeping.  But  manufacturing  in  the  strictest  sense 
varies  greatly  in  time,  and  that  in  the  same  line.  To  tan  a  skin  is  the 
work  in  France  of  a  year,  in  the  United  States  of  a  month.  Suppose  all 
the  other  components  of  cost  the  same  for  both  countries,  French  tanning 
is  evidently  the  more  expensive. 


§  49     Consumption 

Mill,  2d  Ess.  on  Unsettled  Questions.  Patten,  in  Science  Economic  Discussion,  123 
sqq.  Cherbuliez,  bk.  i,  ch.  x.  Clark,  Philos.  of  Wealth,  ch.  iii.  Cossa,  Ele- 
menti,  iv. 

i  Consumption  in  Economics  is  not  the  destruction 
of  matter,  but  an  innnatcrial  process.  It  relates  to 
utility,  consisting  cither  in  the  total  or  partial  annihila- 
tion of  this,  or  in  change  of  its  form,  ii  Consump- 
tion is  either  destructive,  not  yielding  any  advantage, 
direct  or  indirect,  to  any  one,  or  economic,  which  is  the 
voluntary  destruction  of  utility  for  the  sake  of  advan- 


80  COST    AX  11    CONSUMPTION    IX    PRODUCTION 

tage.  iii  Economic  consumption,  synonymous  with 
use,  may  be  uuprodiu'tive,  destroying  utility  to  secure 
immediate  satisfaction  of  need,  or  reproductive,  the 
utihty  reappearing  under  other  forms.  Reproductive 
consumption  is  merely  a  phase  of  production^  itself. 
iv  Consumj^tion  is  not  necessarily  destructive,  or  even 
unproductive,  because  it  leaves  no  tangible  or  measura- 
ble result.  The  use  of  luxuries,  intellectual  or  xsthetic 
entertainment,  and  the  like,  may  create  wealth  indi- 
rectly, or  a  good  tliat  is  not  wealth,  but  better. 

1  This  and  waste  [§  50]  are  the  only  phases  of  consumption  which  it  is 
logical  to  discuss  in  Part  I.  The  general  question  of  the  legitimate  final 
destination  and  fate  of  wcaltli  we  reserve  for  Part  V. 


§  50     Waste  and  Thrift 

Mangoldi,  §  31.     Roscher,  §  45.     Cherhiiliez,  \>V.  i,  ch.  ix,  §  i. 

But  a  vast  proportion  of  consumption  is  destructive 
in  nature,  pure,  unremunerative  waste,^  the  annihilation 
of  so  much  precious  wealth,  which  men  must  dispense 
with,  thus  remaining  poorer,  or  re-create  with  toil  and 
pain.  Such  deficit  mainly  occurs  through  cither  (i)  care- 
lessness, or  (ii)  thriftlcssness.  To  the  first  cause  is 
due  much  deterioration  of  animals  by  overwork,  ill 
food,  and  inattention,  much  decay  of  buildings  and 
machinery,  and  fully  half  of  the  enormous  lo.sses  each 
year  by  fire.^  The  second  cause,  too,  contributes  to 
the  above,  yet  is  chiefly  influential  in  other  ways.  Lazi- 
ness, intemperance,'^  ill  choice  of  dress,  food,*  and 
modes  of  eookinff,  slovenly  tillag-e,  neglect  of  accounts'^ 
and  of  little  sum.s,^  may  illustrate.     The  ill  results  do 


COST    AND    CONSUMPTION    IN    PRODUCTION  8 1 

not  end  with  the  owners  of  the  wealth  that  perishes. 
All  destructive  consumption  tends  to  injure,  and  nearly 
always  does  actually  injure,  the  entire  imlilie.  In  the 
aggregate,  it  is  an  incalculable  detriment  to  mankind. 
Thrift  is  promoted  less  by  a  high  rate  of  interest  than 
by  (i)  morality,  (ii)  g:o()(l  {»:overnnient,  rendering  sav- 
ings safe,  (iii)  strong  family  ties,  prompting  parerts  to 
plan  for  their  children's  best,  and  (iv)  a  proper  distri- 
bution of  wealth.  Very  poor  persons  cannot  save,  the 
very  rich  lack  powerful  motive  for  so  doing.  People  of 
middle  rank  are  the  great  builders  of  wealth,  the  more 
when  gentle  gradation.s  among  them  stimulate  the 
desire  to  rise. 

1  §  30,  n.  3.  Let  no  one  suppose  this  to  be  waste  any  the  less  because 
it  may  invoke  particular  new  applications  of  industry.  E.g.,  "  the  broken 
pane,"  in  Bastiat's  illustration,  Ess.  on  P.  E.  [Putnam's  Ed.,  72  sq.].  The 
glazier  has  more  work:  is  not  the  accident  a  blessing?  Not  at  all.  Sup- 
pose the  pane  had  remained  whole.  The  money  which  the  glazier  has 
received  would  have  gone  [say]  to  the  shoemaker,  whose  prosperity  is  no 
less  important  to  the  community  than  the  glazier's,  while  he  who  had  to 
pay  for  the  pane  would  be  richer  by  a  pair  of  shoes.  Study  this  till  per- 
fectly clear. 

-  Estimated  to  reach  in  the  entire  United  States  over  §100,000,000  per 
annum,  and  in  New  York  state  alone  $15,000,000,  —  the  latter  sum  exceed- 
ing by  $6,000,000  the  whole  burden  of  taxation  for  state  purposes,  and 
being  considerably  over  one-seventh  of  the  annual  increase  in  the  state's 
taxable  property.  It  is  thought  feasible,  through  increase  of  precaution, 
to  reduce  this  destruction,  national  and  state,  by  fully  one-half.  Fire  losses 
to  factory  property  have  already  been  cut  down  much  more  than  this,  viz., 
75  per  cent,  mainly  in  ways  pointed  out  by  the  late  Zachariah  Allen, 
of  Rhode  Island,  and  Edward  Atkinson,  of  Boston.  Insurance  rates 
have  fallen  accordingly.  It  is  uncertain  whether  insurance  decreases  or 
increases  fire  losses,  but  it  very  helpfully  distributes  the  burden  which 
they  entail. 

•■'  §  21,  n.  7. 

^  §  16,  n.  7. 


82  COST    AND    CONSUMPTION    IX    PRODUCTION 

^A  very  prevalent  ami  unfortunate  fault  of  farmers  —  worse  among 
them  than  among  other  industrial  classes  of  like  intelligence. 

5  In  the  savings  banks  of  the  United  States  are,  in  1889,  $1,200,000,000 
or  ? 1 ,400,000,000,  almost  or  quite  as  much  as  all  the  other  banking  insti- 
tutions of  the  country  contain.  A  great  part  of  the  sum  has  been  deposited 
by  persons  of  quite  moderate  means.  Suppose  the  whole  laboring  popu- 
lace to  save  as  these  have!  Thrift  should  be  enjoined  as  a  duty.  The 
introduction  of  school  savings  banks  is  a  worthful  reform,  and  promises 
much. 


Part   II 


EXCHANGE 

EXCEPT  AS   INVOLVING   THE   SCIENCE  OF   MONEY 


-»oi»io<>- 


CHAPTER   I 

the  nature  of  exchange 

§  51     In  Rude   Societies 

I.aveleye,  Primitive  Property.  Maine,  Anc.  Law,  ch.  viii.  Schoenberg,  vol.  i,  27  sqq. 
Hyndman,  Hist.  Basis  of  Socialism  in  Eng.,  104,  109.  Morgan,  '  Montezuma's 
Dinner,"  N.  A.  Rev.,  .^pr.,  1876;  Ancient  Society,  pt.  ii,  ch.  vii. 

We  have  already  often  had  occasion  to  advert  to  the 
phenomenon  of  excliaugc:  it  now  demands  detailed 
study.  I"2xchangc  is  not,  as  is  sometimes  taught,  a 
strictly  necessary  feature  of  economic  life.^  Among 
I)riiiiitive  men  the  distinction  of  vienin  and  tiium  hardly 
arises.  Their  property  is  mostly  coninion,-  their  pro- 
duction wholly  for  their  own  immediate  consumption. 
In  the  village  communities  of  India,  in  Polynesia,  Aus- 
tralia,  and  over  large  parts  of  Africa  may  even  now  be 
seen  families  and  groups  of  families  producing  all  that 
they  consume,  and  consuming-  all  that  they  produce, 


f^4  THE    XATUKK    OF    EXCHANGE 

exchange  practit-ally  unknown/^  Society  in  ancient 
Mexico  and  Peru  is  believed  to  have  been  comiiiuuis- 
tically  orjianized,  no  exchange  being  had  save  trifling 
trade  of  tribe  Avitli  tribe  and  village  with  village.  In 
lOnjrlaiul,  so  late  as  the  fifteenth  century,  exchange  was, 
outside  of  towns  and  cities,  not  indeed  absent  but 
entirely  insijiiiifieaiit  *  as  an  economic  resource,  fam- 
ilies producing  for  the  most  part  what  they  themselves 
consumed  and  no  more.  It  was  much  the  same  in  the 
Aineriean  colonies,  and  so  continued  in  the  remoter 
portions  of  the  states  till  the  railway  era  opened. 
There  remain  to  this  day  isolated  sections^  in  the 
"West  and  South  where  the  play  of  exchange  is  ex- 
tremely limited. 

1  See  §  I,  n.  7.  Mill,  bk.  iii,  cli.  i,  §  i,  shows  that  it  will  not  do  to  take 
exchange  as  the  exact  correlate  of  ivealth.  It  is  hence  both  illogical  and 
confusing  to  place  an  exposition  of  exchange  at  the  threshold  of  w  course 
in  Economics. 

2  See  §  3.  Maine,  Laveleye,  ClifTe  Leslie  and  others  have  proved  that 
private  property,  in  land  at  least,  originated  in  comparatively  recent  times. 
.So  far  as  can  be  traced,  land  was  among  all  peoples,  at  first  and  for  long, 
common  property.  When  severalty-holdings  arose  they  reached  only  to 
house  lots  and  gardens.  Nor  was  community-property  confined  to  land, 
but  extended  to  all  movables  as  well,  with  such  exceptions  as  each  family's 
clothing  and  kit  of  utensils  for  hunting,  fishing  and  the  like.  Even  in 
these  cases  property-right  was  not  then  regarded  absolute. 

"  Contrary  to  frcrjuent  representations,  simple  division  of  labor  does 
not  of  necessity  involve  or  imply  exchange.  Division  of  labor  presents 
itself  in  every  family,  exchange  rarely.     So  in  Shaker  communities. 

*  This,  too,  in  an  age  of  prosperity  for  the  common  people  as  great,  on 
the  whole,  as  was  ever  known  in  England. 

"  Our  communistic  societies  might  also  be  mentioned.  I5ut,  though  no 
exchange  goes  on  within  each,  they  do  traffic  with  the  world  outside,  and 
get  gain. 


the  nature  of  exchange  85 

§  52     Philosophy 

Ad.  Smith,  bk.  i,  ch.  ii.     Mangoldt,  bk.  iii,  ch.  i.     Cherbuliez,  bk.  ii,  ch.  i. 

Yet  exchange  is  natural,  in  the  same  sense  as  are 
development  and  civilization.  i  Different  human  ^ 
beings  possess  tastes  and  aptitudes  for  different  pur- 
suits, nearly  every  individual  having  a  peculiar  fitness 
for  some  one  line  of  production,  his  efforts  most  avail- 
ing if  confined  to  that  single  line.  The  talent  may  be 
original,  acquired,  or  partly  either,  ii  The  environ- 
ments of  men  are  about  equally  various,^  fixed  so  in  the 
very  constitution  of  the  earth,  and  these  affect  their 
nroducing  power  much  as  their  unlike  abilities  do. 
iii  At  the  same  time  each  man  has  the  capacity  and 
desire  to  enjoy  all  or  nearly  all  sorts  of  products,  and 
will  enjoy  them  if  he  can  obtain  them.^  iv  From  these 
multitudinous  needs  of  men,  coupled  with  the  extreme 
diversity  in  the  advantages  which  they  possess  rela- 
tively to  each  other,  springs  exchange,  whereby  one, 
with  his  special  product  or  kind  of  products,  purchases 
for  the  satisfaction  of  his  own  numerous  desires,  the 
various  products  of  his  fellows.  The  process  extends 
its  scope '^  according  as  wealth,  culture,  needs,  the 
division  of  labor,  and  man's  mastery  of  the  earth 
increase. 

^  Adam  Smith,  as  above,  places  exchange  among  the  marks  which 
especially  differentiate  man  from  the  brute.  He  and  others  have  raised 
the  question  whether  or  not  there  is  innate  in  man  a  specific  propensity 
to  exchange.  None  pertains  to  the  race  as  such.  The  tendency  is 
acquired  —  a  growth  consequent  upon  the  great  good  which  exchange 
confers  on  society.  /.<'.,  people  would  not  long  exchange  did  they  not 
iiiid  lliuir  account  m  it. 


86  THE    NATURE    OF    EXCHANGE 

-  One  man  lives  near  a  prolific  gold  mine,  a  second  where  cattle  are 
fattened  for  the  tending,  a  third  where  valuable  game  is  easily  taken,  a 
fourth  by  fine  waterfalls  or  rich  coal  beds,  tempting  to  manufacture,  a  fifth 
on  the  seashore,  catching  fish  enough  in  a  day  to  feed  a  hundred  people, 
a  sixth  owns  a  fertile  farm,  and  so  on. 

8  The  tendency  is:  specialty  in  production,  universality  in  consumption. 
But  for  exchange,  here  would  be  a  fatal  fracture  in  the  frame  of  society. 

*  Cf.  §  54. 


§  53     Tntrtnstc  Advantage? 

Mangoldt,  bk.  iii,  chaps,  i,  ii.     CherbuUez,  bk.  ii,  ch.  vii.     Perry,  ch.  iv. 

Suppose  that  a  tailor  can  make  a  coat  in  one  day,  a 
hat  only  in  six  clays,  and  that  a  hatter  can  make  a  hat 
in  one  day,  a  coat  only  in  six.  Without  exchanging, 
each  must  work  seven  days  for  a  hat  and  a  coat.  By 
exchanging,  each  can  obtain  both  articles  for  two  days' 
work,  and  wealth  will  gain  five  coats  and  five  hats. 
Such  saving  is  the  tendency  of  all  spontaneous  ex- 
change. This  illustration  teaches  that :  i  There  is  no  nec- 
essary reason  why,  in  any  exchange,  both  parties  should 
not  gain.  If  the  contract  is  intelligently  and  freely 
made,  both  do  gain.^  ii  The  greater  the  diversity  of 
relative  advantage  between  the  parties,  the  greater  the 
profit  of  exchanging.  Thus  every  man's  special  for- 
tune, skill,  talent,  or  felicity  of  situation  is  through 
exchange  a  benefit  to  the  public^  in  spite  of  him. 
iii  Any  abridgment  to  liberty  of  exchange,  whether 
between  persons,  sections  or  nations,  must,  at  least  in 
the  first  instance,  inevitably  produce  loss.  Whether 
the  hindrance  can  in  this  or  that  case  prevent  greater 
loss,  or  set  in  train  compensating  causes,  is  often  an 
important  question.'^ 


THE    NATURE    OF    EXCHANGE  8/ 

>  Take  the  men  supposed  at  §  52,  n.  2.  Confine  each  to  the  direct 
fruit  of  his  own  toil,  and,  however  diligent  they  are,  all  suffer  from  poverty. 
Let  them  exchange,  and  every  one  of  them  will  better  his  condition  a 
hundred  fold  vvitiiout  an  additior.al  stroke  of  labor.  They  can  well  afford 
to  pay  the  merchant  and  tlie  teamster  who  mediate  the  transfer. 

Even  if  you  are  unfortunate,  and  in  this  sense  compelled  to  buy  or  sell, 
your  act  is  best  for  you  under  the  circitinstances.  Mow  is  it  in  stock 
gambling?  Here,  too,  the  law  holds,  since,  in  a  very  true  sense,  the  con- 
tract is  blindly  made. 

2  A  fine  illustration  of  the  benevolence  wrought  by  Nature  into  our  very 
constitution.  Cases  are  meant,  of  course,  where  the  advantage  has  not 
been  won  at  any  one's  expense.  We  may  mention  here  the  super-economic 
bles.sings :  religious,  moral,  resthetic,  intellectual,  which  attend  exchange  — 
the  broadening  of  men's  lioii/.on,  aid  to  Christian  missions,  prevention  of 
war,  national  and  international  charity  in  famines  and  pestilences.  Com- 
merce is  the  prince  of  civilizers. 

8  In  some  instances  to  be  answered  affirmatively,  in  others  negatively. 


§  54     Reach  of  Influence 

Uangoldt,  as  at  last  §.     Roscher,  §89;    Naiionalok.  d.  Ackerbaues,  Einl.     Cher- 
bulifz,  bk.  ii,  ch.  v. 

With  the  progress  of  exchange  the  entire  face  of 
the  economic  world  becomes  transformed,  while  civ- 
ilization 1  attains  a  loftier  level  and  a  richer  diversity. 
i  A  special  class  of  merchants  or  middlemen  arises, 
whose  contribution  ^  to  social  weal  consists  exclusively 
in  furthering  the  necessary  exchanges  between  original 
pro<lucers  and  final  consumers,  ii  Communities  and 
classes  ascertain  their  fittest  places  in  the  nation's 
economy,  nations  theirs  in  that  of  the  world,  iii  Not 
only  is  production  ^  immensely  increased  in  the  aggre- 
gate, and  still  more  relatively  to  effort,  but  much  of 
it  takes  place  in  mammoth  establishments,  correspond- 
in ;  to  the  enlarpred  markets,  entailing  division  of 
labor*   with    its   good    and    its    evil    accompaniments 


88  THE    NATURE    OF    EXCHANGE 

iv  Increasingly  vast  grows  the  mass  of  goods  which 
are  pro<luce(l  for  exchange.  In  tendency  thus  to  seek 
consumption  indirectly,  articles  vary  greatly,  according 
to,  i)  acquaintance  of  peoples  with  peoples  and  sec- 
tions with  sections,  2)  the  desire,  both  intensive  and 
extensive,^  of  parties  for  each  other's  wares,  3)  the 
quality  of  these  as  preservable  or  perishable,^  4)  their 
size  and  weight,'  5)  the  presence  or  absence  of  the 
necessary  means  of  exchange  or  of  transportation 
and  of  social  and  legal  restrictions  thereto,  v  New 
modes  of  communication  and  transportation  are 
called  for  and  developed,  which  radically  change  the 
distribution  of  manufacturing  and  commercial^  centres. 
The  proportion  of  urban  to  rural  population  mightily 
swells.^  Great  cities  rise,  and,  efficient  political  admin- 
istration being  now  possible  on  a  grander  scale,  petty 
states  give  way  to  those  of  the  colossal  order. ^^^ 


^  As  a  single  illustration,  the  complicated  instruments  for  scientific 
investigation  could  neither  l)e  made  liy  llieir  uiL-rs  nor  used  by  their  makers. 
The  susceptibility  of  a  nation's  wealth,  as  a  w  hole,  to  be  jiassed  from  hand 
to  hand  gauges  the  grade  of  culture  [England  and  Russia].  Species  of 
wealth  vary  quite  remarkably  in  this.     Cf.  notes  6  and  7,  below. 

2  I.e.,  their  work  as  producers,  for  normal  exchange  is  an  act  of  pro- 
duction. See  §  18,  n.  2,  §  20,  vi,  and  n.  4.  lOnough  of  these  mediators 
is  important,  too  many  a  loss.  They  tend  to  multiply  unduly,  an  evil 
analogous  to  overproduction. 

^  Fresh  facilities  for  exchange  quicken  production,  this  reacts  upon 
those,  and  so  on,  each  cause  ceaselessly  and  in  ten  thousand  ways  influenc- 
ing the  other. 

«  See  §§  43,  44,  45. 

'  A  person,  a  locality,  a  country,  may  need  but  little  of  another's  com- 
modity, yet  need  that  little  very  much  [as  quinine].  Or  the  need  may 
have  wide  incidence,  yet  be  liltle  urgent  [luxuries].  Regularity  of  de- 
mand is  an  important  consideration. 


THE    NATURE    OF    EXCHANGE 


89 


^  Willi  progress  in  tlie  arls  of  preserving  and  handling,  many  jirodiicts, 
as  ice,  milU,  fruit,  fresh  fish  and  meat,  are  at  present  open  to  far  exchanges, 
which  once  were  not  so.  There  is  progress  in  these  processes  year  by 
year  [strawberries,  oysters,  clams].  There  are  regular  shipments  of  fresh 
game  from  St.  Pctetsburg  to  Paris,  arriving  in  from  three  to  live  days. 
Articles  of  food  as  a  class  decay  quicker  than  other  categories  of  wealth. 

'  Roads,  docks,  most  liuildings,  also  certain  cumbrous  pieces  of  machin- 
ery, have  to  be  constructcil  where  wanted.  Heavy  wares,  lead,  iron,  cop- 
per, are  carried  only  with  great  expense.  In  many  such  cases  the  mobility 
is  considerable  and  un  the  increase.  Houses  arc  gotten  up  in  parts  and 
shipped  afar.  So  water  and  drive  wheels  of  largest  sizes.  Pig  iron,  cop- 
per and  lead,  steel  rails,  ties  and  beams  cross  oceans  and  continents.  Put 
all  this  costs. 

*  Nearly  all  the  largest  cities  are  still  accessible  to  heavy  shipping. 
Berhn,  however,  [1,315,297  inhab.],  is  not,  and  a  large  and  growing 
number  of  cities  of  the  second  rank,  as  Manchester  and  Birmingham,  Eng., 
are  not. 

**  In  the  United  States,  the  percentage  of  urban  [dwellers  in  cities  of 
8000  or  over]  to  total  population  has  increased  as  follows : 


1790 

3-3 

1840 

8.5 

In  the  50  largest  American  cities  in  1880, 

1800 

3-9 

1850 

12-5 

4  5    per    cent   of    the  workers  were  cn- 

I8I0 

4.9 

i860 

i5.i 

j;aKed  in  manufacturing  and  mechanical 

1820 

4.9 

1870 

20.9 

industry,  24  per  cent  in  trade  and  trans- 

1830 

6.7 

1880 

22.5 

portation. 

In  England  the  percentage  of  peoiile  in  cities  of  20,000  or  over  was 
51  in  1S51,  54.5  in  1861,  56.8  in  1S71,  and  59.6  iu  iSSi.  England  and 
Wales  in  1881  had  66.6  per  cent  of  their  population  in  places  contain- 
ing 3000  or  more  inhabitants.  Eurther  on  this.  Smith  [R.  M.],  Statistics 
and  Economics,  28  sqq. 

^•^  Roads  gave  the  Roman  enq)ire  such  eternity  as  it  had.  It  is  nearly 
certain  that  but  for  railway  and  telegraph  the  United  States  could  not  have 
continued  till  now  a  single  nation.  Signilicant  that  before  1870  no  solid 
general  government  ever  existed  in  ("lermany,  nor,  after  Justinian,  in  Italy. 
Every  nation  of  llrst  r.ink  has  since  1850  either  extended  or  strengthened 
its  sovereignty,  or  both. 


90  the  nature  of  exchange 

§  55     The  Perfection  of  Exchange 

Mangoldt,  §§  43  sqq.     Schoeiiherg,  vol.  i,  VH-X. 

Exchange  becomes  freer  and  more  complete  in  pro- 
portion to  improvements  in  :  i  Means  (jf  preserving- 
perishable  goods. ^  ii  FaciHties  for  trjin.sporting  intel- 
ligence, persons,  and  freight. ^  iii  Institutions  which 
bring  would-be  buyers  and  sellers  together,  such  as 
fairs,^  market  seasons,-*  market  cities  or  towns,  market 
places  in  the  same,  exchanges,  stores,  shops,  travelling 
salesmen,  international  expositions,  and  the  like.  iv 
AVeights  and  measures,  wherein  accuracy,^  simplicity,^ 
and  universality'  are  the  foremost  desiderata,  v  The 
mobilizing  of  property,  by  stocks,  bonds,  certificates,^ 
or  other  titles,  vi  Money  and  the  system  of  credit/-* 
vii  KnoAvledge,!^  commercial  legislation  and  adminis- 
tration, international  law^^  and  comity. 

1  See  §  54,  n.  6. 

-  See  §  54,  n.  7.  Telegraph  and  telephone  have  immensely  cheapened 
production  by  rendering  it  unnecessary  for  retailers  or  ordinary  wholesalers 
to  keep  so  extensive  stocks  as  formerly. 

8  Traffic  was  the  original  purpose  of  fairs,  and  still  remains  that  of  the 
great  fairs  at  Leipzig. 

«  Certain  hours  of  the  day,  certain  days  of  the  week  or  month.  It 
marks  an  advance  when  any  commodity,  not  having  previously  been  so, 
is  regularly  on  sale  in  a  given  locality. 

'"  Absolute  accuracy  is  unattainable,  yet  modern  standards  are  incom- 
parably more  exact  than  those  prevalent  so  recently  as  two  centuries  ago. 
See  'Weights  and  Measures'  in  Am.  Cyclop,  and  in  Encyc.  Brit.,  also 
Jolly,  in  Schoenberg.  An  Act  of  Parliament,  July  30,  1855,  decreed 
"That  the  straight  line  between  the  centres  of  the  transverse  lines  in  the 
2  gold  plugs  in  the  bronze  bar  deposited  in  the  office  of  Uie  Exchequer 
shall  be  the  genuine  standard  yard  at  62°  F."  The  U.  S.  yard  is  supposed 
to  accord  with  the  above,  but  is  in  fact  about  ,^^5  of  an  inch  longer. 
Practically,  the  m<-tric  basis,  too,  must  vary  with  places.     Ordinary  instru- 


THE    NATURE    OF    EXCHANGE  9 1 

ments  for  weighing  and  measuring,  ill  made  and  roughly  used,  betray 
great  discrepancies. 

®  The  metric  system,  with  binary  modifications  for  small  dealings,  is 
far  the  best  yet  devised.  The  Dutch  savant,  van  Swinden,  working  for  the 
French  Academy,  originated  the  idea  of  it,  and  the  system  was  incorpo- 
rated into  French  law  in  1795-  All  other  civilized  nations  have  since 
adopted  it  save  Great  Britain  and  its  colonies,  the  U.  S.,  Russia,  Denmark, 
and  Switzerland. 

'  According  to  Kolb,  cited  by  Mangoldt,  there  were  in  Europe  at  the 
end  of  the  last  century,  more  than  400  different  pounds,  and  in  the  Grand 
Duchy  of  Baden  alone,  so  late  as  1822,  112  different  yards.  What  an 
obstruction  to  trade !     The  metric  system  ought  to  become  universal. 

^  By  the  'pipe  line  certificates,'  which  are  simply  warrants  or  titles  to 
so  many  barrels  of  crude  petroleum,  oil  is  traded  in,  used  for  collateral, 
etc.,  as  freely  as  bonds,  stocks,  or  bank-notes.  The  system  is  now  ex- 
tended to  pig  iron,  and  will  probably  be  to  all  other  commodities  durable 
in  nature  and  susceptible  of  division  into  permanently  fixed  amounts. 

^  See  in  Part  III.  Well-made  and  full-weight  coins,  paper  at  par  here- 
with, monetary  units  having  stable  purchasing  power,  sound  and  widely- 
developed  banking  and  clearing  systems — all  are  needed.  Helpful  to 
international  trade  are  established  and  familiar  banking  relations  between 
different  lands,  the  trustworthiness  of  stamps,  labels  and  the  like.  A  later 
age  will  see  world-money  and  the  international  currency  of  personal  checks. 

^^  Cf.  §  54,  iv.  International  expositions  [Philada.,  1876;  Paris,  1889] 
doubtless  have  vast  commercial  value,  informing  nations  about  each  other's 
products. 

^^  Chief  reference  is  to  private  international  law,  to  the  facile  collection 
by  private  parties  of  debts  due  abroad.  The  industrial  importance  of  this 
has  been  too  little  observed. 


CHAPTER    II 

international   exchange 

§  56     Initial  View 

Mill,  bk.  iii,  ch.  xvii.  Cairnes,  Leading  Principles,  pt.  iii,  ch.  iv.  Perry,  chaps.  Jciii, 
xiv.  Ad.  Smith,  bk.  iv.  Bastable,  Theo.  of  Intl.  Trade.  Gill,  Free  Trade. 
Soniers,  '  Exchange,'  in  Encyc.  Brit. 

Nations  as  well  a.s  inrtividu.ils  have  diversities  of 
relative  advantage,  so  that,  prima  facie,  international 
exchange  offers  all  the  econoiiiic  benefits  of  personal 
and  domestic,^  on  a  far  j^rander  .scale.  Such  an  im- 
pression is  confirmed  by  the  following  considerations  : 
i  Were  there  no  mutual  profit  in  international  ex- 
change, it  would  cea.se.  ii  Should  nations  undertake 
to  produce  at  home  the  things  which  they  import, 
effort  would  obviously  be  wa.sted.  iii  Since  the  gain 
from  international  trade  depends  on  the  relative  cost 
of  the  things  exchanged,  and  not  on  the  absolute  cost 
of  either,  the  traffic  may  be  i)rofi table  though  the  im- 
ported ware  could  have  been  produced  at  home  more 
cheaply.^  iv  The  commodity  exports  and  imports  be- 
tween any  country  and  the  rest  of  the  world,  must,  in 
the  long  run,  pay  for  each  otlier,  gold  and  silver  being 
used  but  rarely.'*  v  As  wealth  from  abroad  can  be 
gotten  only  by  the  provision  of  a  domestic  surplus, 
foreign  trade  enlarj?es  domestic  industry  instead  of  les- 
sening it.  vi  Yet  the  j?reat  advantage  of  this  trade 
resides  not  in  mere  extra  bulk  of  goods  produced  for 


INTERNATIONAL    EXCHANGE  93 

export,  but  in  the  nature  of  the  imports,  since  in  these 
each  nation  reaps  some  of  the  benefits  which  flow  from 
the  peculiar  advaiitag-es  enjoyed  by  the  nations  with 
which  it  trades.^  vii  A  nation  having  every  incentive 
to  send  abroad  its  cheapest  products,  those,  namely,  in 
the  creation  of  which  it  has  the  greatest  advantage  over 
others,  commerce  is  a  sovereign  agent  in  clieapcning 
production.  viii  The  benefits  of  exchange  between 
nations  cannot  be  confined  to  any  class  or  section,''  but 
reach  all  consumers,  the  poor,  if  anything,  more  help- 
fully than  the  rich. 

1  See  §§  52,  53,  54,  and  notes.     Walker,  P.  E.,  468  [n.  fr.  Sumner]. 

-  No  anomaly,  impossible  as  it  may  seem  and  rarely  as  it  may  occur. 
The  loss  on  the  import  over  what  it  would  have  cost  at  home  may  be  met 
and  much  more  by  the  extraordinary  price  realized  on  the  export.  "The 
ship  would  return  in  ballast."  Not  necessarily.  Captains  often  pay  for 
the  privilege  of  bringinc;  iron  or  tin  from  luigland,  as  cheaper  than  to 
purchase  IjalList,  the  diminution  of  freight  thus  secured  sometimes  out- 
weighing the  American  duty. 

3  No  nation  could  long  send  money  abroad  in  payment  for  imports.  A 
very  short  continuance  of  the  process  would  so  deplete  the  stock  of  money 
as  to  lower  prices,  inviting  buyers  from  abroad.  They  would  of  course 
bring  money,  and  the  former  supply  would  reappear.  Should  a  country 
begin  exporting  for  money  only,  the  reverse  phenomena  would  have  place. 

*  Fawcett,  Manual,  3S6. 

*  True,  even  when  free  competition  in  importing  is  not  permitted.  Faw- 
cett, Manual.  379.  If  any  given  import  becomes  monopolized,  as  by  an 
international  trust,  the  distribution  of  advantages  will  of  course  be  so  far 
rendered  imperfect,  just  as  in  case  of  domestic  monopolies.  The  importer, 
that  is,  or  the  set  of  importers,  will  retain  an  undue  share  of  the  gain. 
But  not  all  can  be  so  kept. 


94  INTERNATIONAL    EXCHANGE 


§  57     Common  Ground 

Mill,  bk.  V,  ch.  X,  §  I.     Roberts,  Government  Revenue.     Roscher  [Eng.  Tr.],  App.  II, 
Georgf,  Protection  or  F.  Tr.ide.     Gill,  and  Bastable,  as  at  §  56. 

Nearly  all  economic  thinkers  admit, ^  on  the  one  hand, 
that  :  i  A  nation  may  sometimes  with  advantage  re- 
strict purchases^  by  its  citizens  abroad  i)  to  diversify 
its  own  industry,  2)  as  a  provision  for  foreij;n  war,  to 
force  the  domestic  creation  of  \var  material,  or  3)  in 
the  way  of  coniniorcial  retorsion.''  ii  Tariffs  for  reve- 
nue* are  legitimate  and  convenient,  and  withal  as  just 
as  any  form  of  indirect  taxation  can  be.  iii  Theoreti- 
cally '  it  may  be  advantageous  to  encourage  by  legisla- 
tion a  branch  of  industry  which  might  be  profitably 
carried  on,  which  is  therefore  sure  to  be  carried  on 
eventually,  but  whose  rise  is  prevented  for  the  time 
being  by  artificial  or  accidental  causes.'^  iv  Particular 
men,  trades,  and  localities  often  profit  largely  from  re- 
strictive measures.  Few  will  deny,  on  the  other  hand, 
that  :  V  Commerce,  involving  wide  acquaintance  of 
nations  with  nations  through  their  interchange  of 
services  and  productions,  is  a  prime  civilizer,^  greatly 
lessening  the  danger  of  wars  and  famines,  and  dissemi- 
nating infinite  moral  and  religious  good,  vi  A  policy 
of  restriction  cannot  possibly  be  entered  upon,  altered. 
or  given  up,  without  visiting  considerable  hardship 
upon  certain  individuals,  classes,  or  sections."  vii  In- 
tro-national free  trade  is  a  priceless  blessing,  as  inter- 
national is  destined  to  become  in  the  course  of  time.^ 

'  Still  another  point  on  which  probably  all  would  agree  is  that  men- 
tioned at  end  of  §  60.     "  Compensating  duties,"  too,  on  imports  the  snme 


INTERNATIONAL    EXCHANGE  95 

in  kind  with  articles  bearing  excises  [internal  taxes],  if  not  unduly  high, 
no  one  would  condemn  [Ad.  Smith,  hk.  iv,  ch.  iij. 

-  By  duties  on  imports  or  hy  the  absolute  prohibition  of  them.  This 
puts  up  the  prices  of  the  things  thus  taxed,  and  induces  domestic  produc- 
tion.    See  §  58. 

^  High  duties,  or  prohibition,  in  revenge  for  the  like  by  some  other 
nation  to  the  disadvantage  of  yours. 

*  Perry,  427.  /.oti-  and  practically  inappreciable  duties,  on  /t-co  articles, 
noi  produced  at  home.  So-called  protective  duties,  on  the  contrary,  must 
of  course  cover  home  products,  while  the  higher  they  are,  the  better,  as  a 
rule,  they  fulfd  their  ofiRce.  They  may  easily  I)c  so  elevated  as  to  yield 
the  government  no  income  at  all,  smuggling  [Blanqui,  ch.  xxvii],  false 
invoices  [Lond.  Times,  Mch.  21,  '84],  and  other  dishonesty  in  merchants 
being  among  the  reasons.  If  the  revenue  on  articles  not  produced  in  the 
country  is  insufficient  without  making  rates  too  high,  some  imports  the 
same  in  kind  with  things  created  at  home  may  also  be  dutied,  an  excise 
equal  to  the  duty  being  laid  on  the  domestic  production  to  prevent  unfair 
favor  to  home  producers  thereof.  The  system  so  sketched  is  Great  Britain's 
and  New  South  Wales's.  Ancient  customs  systems  were  for  revenue,  not 
restriction.  Carthage  exacted  tolls  both  at  home  and  at  provincial  ports. 
Rawlinson,  Man.  of  Anc.  Hist.,  So.  Athens  in  t.  of  Pericles,  had  a  2  per 
cent  duty  on  both  exports  and  imports,  besides  harbor  dues  of  i  per  cent, 
lb.,  178.  Cf.  Thucydides,  II,  38.  Egypt  under  the  Ptolemies,  Rawl.,  232. 
Obviously,  taxes  thus  raised  are  paid  alone  by  the  users  of  the  articles 
taxed.  In  strictness  this  is  unjust,  all  admit.  II.  George  and  his  follow- 
ers, besides  a  consideralde  party  in  England,  therefore  repudiate  revenue 
duties  along  with  all  indirect  taxes,  advocating  direct  taxation  as  alone 
admissible.  Revenues  are  by  no  means  large  in  proportion  as  duties  are 
high.  Rather  does  the  proportion  tend  to  be  an  inverse  one.  The  rates 
of  U.  S.  import  duties  were  about  doubled  in  181 2  with  no  increase  of 
income. 

5  Taussig.  To  illustrate,  Maryland,  about  1670,  would  have  done  well 
to  protect  cereals.  Tobacco  was  so  high  that  all  attention  was  devoted  to 
it,  so  that  some  years  colonists  were  in  danger  of  starvation.  Winsor, 
Narr.  and  Grit.  Hist.,  vol.  iii,  543.  "But  from  the  difficulty  of  securing 
in  any  actual  government  sufficient  wisdom,  strength  and  singleness  of  aim 
to  withdraw  protection  inexorably  so  soon  as  the  public  interests  require, 
it  is  practically  best  for  a  statesman  to  adhere  to  the  broad  and  simple  rule 
of  taxation  for  revenue  only"  [.Sidgwick].  A  good  general  precept  at 
least.  Cf.  post,  §  59,  n.  i,  also  Bastable,  Intl.  Trade,  ch.  ix,  Cairnes, 
Leading  Prin.,  403,  n,  and  George,  Social  Problems,  231. 


96  INTERNATIONAL    EXCHANGE 

^  Cf.  §  53,  n.  2.  Another  consideration  of  this  moral  order  is  the  loss, 
beggary  sometimes,  which  one  nation's  restriction  inflicts  upon  another's 
citizens.  On  the  co/isfi/zt/io/iu/  c[\xesi\on  [in  U.  S.],  '  F.  Trade,'  in  I.alor; 
Cooley,  Const.  Law,  57;   Ihering,  Geist  d.  r'dm.  Kechtes,  I,  7. 

■  There  must  be  more  or  less  discrimination  between  industries,  involv- 
ing them  often  in  great  mutual  hostility.  Ad.  Smith,  bk.  iv,  eh.  ii.  Any 
bar  upon  commerce  of  course  tends  to  destroy  the  business  of  ship-builders 
and  sailors.     Wells,  Our  Merchant  Marine. 

*  Even  Professor  Thompson  says  this.  The  freedom  will  be  safe,  that 
Is,  so  soon  as  the  same  fraternity  and  substantial  economic  equality  come  to 
prevail  lietween  nations  which  now  subsist  between  the  parts  of  each. 
Only  a  few  advocates  of  perpetual  trade  isolation  still  remain.  On  Fichte's 
"  Exclusive  State,"  Adamson's  Fichte,  76.  Max  Wirth,  on  H.  C.  Carey's 
Prot.  Theo.,  Vierieljahrsch.  f.   Volksivirtschaft,  1863,  vol.  ii. 

§  58     The  Theory  of  Nutrient  Restriction 

Denslow,  Prin.  of  Ec.  Philos.,  chaps,  xiv,  xv.  Thompson,  Elements  of  Pol.  Econ.; 
'Protection,'  in  Encyc.  Brit.  [Stoddart's  ed.:  full  restrictionist  bibliog.].  Rogers, 
'  Free  Trade,'  ibid.  Laughlin,  ed.  of  Mill,  677.  Wells,  '  Free  Trade,'  in  Lalor. 
de  Molinari,  '  Protection,"  ibid.  Stunner,  Protectionism.  Faiucett,  F.  Trade  and 
Protection.  Bastable,  chap.s.  viii,  ix.  Patien,  Prem.  of  P.  E.,  vii.  [Best  list  of 
works  pro  and  con  is  in  Rob.  Clarke  and  Co.'s  Catal.  of  Wks.  on  P.  E.,  Cinn.,  1888.] 

There  are  those  who  believe  in  the  le^iral  limitation  ^ 

of  foreign  commerce  not  merely  as  a  prophylactic,  a 
stimulant,  or  a  tonic,  but  as  a  highly  beneficial  form 
of  indu.strial  nutriment,  supposing  it  to  give  the  body 
politic  flesh  and  blood  not  indirectly  alone  but  as  an 
iu.stant  consequence,  at  the  very  moment  of  its  astrin- 
gent efficiency,  and  about  in  proportion  thereto.  The 
error  of  this  view  appears  when  one  reflects  that  it  is 
absolutely  impossible  for  the  required  check  on  impor- 
tation to  take  effect  save  at  the  public  expense,  by  a 
rise  in  price  ^  through  the  whole  line  of  goods  affected, 
whiethcr  produced  at  home  or  imported.  Actual  restric- 
tion, therefore,  so  long  as  it  lasts,  could  not  but  involve 
net  lo.ss,  sAvellinjf  the  co.st  at  which  the  nation  supplied 


INTERNATIONAL    EXCHANGE  97 

its  wants,  and  retarding  prortiuliim  by  the  transfer 
of  effort  from  more  to  less  efficient  lines.  Should 
a  business  previously  sheltered  at  any  time  begin  to 
yield  average  profits  without  the  aid  from  society,^  that 
very  fact  would  be  proof  that  it  had  outgrown  its  need 
of  legislative  fostering.  Nor  does  restriction  have  a 
happier  effect  on  the  distribution  of  wealth  than  on 
its  production.^ 

1  It  is  well  to  avoid  so  far  as  possible  the  terms 'protection,'  'protec- 
tive,' etc.,  because  of  their  ambiguity.  Scientific  discussion  with  them  is 
impossible.  Besides  the  form  of  restriction  canvassed  in  this  §,  each  of 
the  three  mentioned  in  §  57,  i,  is  known  as  'protection.'  To  dub  a  policy 
'  protective  '  settles  nothing.  The  very  question  at  issue  is,  What  policy 
bids  fair  to  be  on  the  whole  most  '  protective'? 

-  Efficient  restriction  must  raise  prices.  In  no  other  way  can  it  become 
cHicient.  Nor  is  the  loss  on  what  a  man  buys  made  up  by  the  higher 
prices  of  what  he  has  to  sell.  The  result  is,  during  the  actual  incidence 
and  working  of  the  restriction,  an  increase  in  the  total  amount  of  effort 
put  forth  by  the  nation  for  its  total  product,  or  else  the  loss  of  a  part  of 
that  product  [Cairnes,  Leading  Prin.,  pt.  iv,  ch.  iv]. 

8  I.e.,  still  p(J}',  yet  sell  at  rates  as  low  as  free  foreign  competition  would 
fix.  The  restrictive  law  might  remain  but  would  be  a  dead  letter  as  to  the 
given  species  of  goods.  Notice  that  the  mere  tariff  rate  on  an  article  does 
not  show  whether,  or,  if  so,  how  much,  the  duty  raises  the  price  of  the 
article.  It  may  not  affect  the  price  at  all,  in  which  case  it  is  nominal  only; 
or  it  may  raise  the  price  by  the  full  amount  of  the  rate.  The  continuance 
of  importations  in  any  sort  of  goods  proves  that  prices  have  been  elevated 
by  the  full  figure  of  the  actual  'protection.'  If  a  duty  is  prohibitive,  the 
elevation  may  fall  much  below  the  tariff  figure. 

*  If  it  did,  this  fact  might  justify  the  policy  even  though  the  nation  were 
poorer  thereby.  Feudalists  and  socialists  are  wont  to  allege  that  freedom 
of  commerce  would  crush  out  the  middle  class,  leaving  only  millionnaires 
and  proletaries.  French  Revolutionary  history  and  policy  disproved  this. 
von  Sybel,  French  Rev.,  I,  24. 


98  INTEKiNATIONAL    EXCHANGE 


§  59     Continuation 

Sec  the  authh.  at  §  58,  esp.  Sumner.     Prince-Smit/t,  'Handels/reiheit,''  in  Rentzsch's 
Handuwrterbuch. 

The  same  conclusion  is  reached  if  we  consider  the 
various  ways  in  which  restriction  has  by  different 
writers  been  thought  to  effect  its  end.  i  IjOAvcrinjr 
prices.^  ii  Increasiiij*-  or  condensing:  population.^ 
iii  Invitinjj-  in  foreij^n  capital.  Results  i  and  ii  are 
possible  at  best  only  after  loss  of  capital  and  lapse  of 
time,  which  refers  them  to  §  57  :  iii  can  ensue  sooner. 
But  though  in  each  of  these  cases  net  gain  may  conceiv- 
ably be  realized  at  last,  it  can  never  in  any  of  them  T>c 
proved  beforehand  that  this  will  result,  or  afterwards 
that  it  has  resulted.^  iv  Itaisinjif  wag-es.  This  can 
occur,  if  at  all,  only  as  an  incident  of  general  industrial 
prosperity,  and  will  not  attend  even  this  if  immigration 
is  free.^  v  Keeping-  at  home  exchange-pro  fits  which 
else  would  go  abroad.  But  the  existence  of  a  desire 
to  exchange  abroad  makes  it  certain  that  legal  restraint 
could  not  but  lessen  the  number  or  the  profit  of  the 
total  exchanges,  or  both.^  vi  Making  foreigners  pay 
part  of  our  taxes.  This  would  be  unjust  were  it  pos- 
sible, but  it  is  not.  To  impose  or  raise  duties  certainly 
decreases  foreigners'  profits  from  trade  with  you,  but 
does  not  force  from  them  the  slightest  positive  tribute.^ 

1  This  may  be  i)  turnporary,  a  consequence  of  ruinous  competition, 
involving  depletion  of  aggregate  wealth,  or  ii)  pertnanent.  The  latter 
might  arise  through  protection  to  young  industries  [§  57,  iii].  Or  strug- 
gling manufactories  some  time  in  existence  might  lie  enabled  to  cheapen 
their  line  of  product  by  a  laiger  market  [al)ove,  ii].  In  any  case  loss 
would  have  to  be  incurred,  which  no  one  could  ever  so  measure  as  to 
certify  that   it  was  less  than  the  gain,  though  it  might  possibly  be.     Of 


INTERNATIONAL    i.XCHANGE  99 

course  cheapness  may  acccipany  ox  follow  restriction  without  l)einR  causeti 
thereby. 

2  In  new  countries  population  may  be  too  thin  for  the  utmost  efficiency 
of  its  total  labor  [Mill,  bk.  i,  ch.  viii,  §  3].  The  thought  is  that  it  can,  by 
legal  measures,  costly  at  first,  which  nurse  manufacturing,  be  thickened 
from  abroad,  or,  without  this,  assembled  in  towns  and  villages,  so  as  to 
produce  more  per  capita,  and  presently,  casting  aside  protection,  to  defy 
foreign  competition  even  in  the  articles  at  first  imported.  Free-traders  too 
much  ignore  the  possibility  of  this,  restrictionists  its  uncertainty,  costliness 
and  practical  difficulties. 

^  Many  chances  for  loss  would  be  about  certain  to  be  overlooked, 
among  them  the  impoverishment  of  customer-nations  and  the  limitation 
of  market  for  unprotected  industries.     Lalor,  vol.  ii,  303. 

■»  See  §  60,  3.  If  immigration  is  unhindered,  foreign  laborers  are  in 
competition  with  domestic,  forcing  wages  down  toward  the  lowest  level 
abroad.  If  it  is  prevented,  the  wages  question  depends  for  answer  on 
the  propriety  of  the  restrictive  policy  at  large. 

6  If  you  forbid  a  man  who  wishes  to  do  so  to  trade  across  the  line,  it 
is  conceivable  that  he  may  effect  the  desired  exchange  with  equal  profit 
at  home,  his  home  customer's  gain  being  a  clear  increment  to  the  nation's 
wealth  in  consequence  of  the  hindrance.  But  it  is  perfectly  certain  that 
this  would  not  be  the  case  once  in  a  hundred  times  [Ad.  Smith,  bk.  iv, 
ch.  iii].  In  arguing  from  such  mere  possibilities,  restrictionists  are  often 
worse  doctrinaires  than  their  opponents. 

6  Sumner,  [London]  Economist,  Dec.  I,  '83;  Protectionism,  149;  Sidg- 
wick,  491  sqq.  Full  canvass  of  the  proposition  is  too  long  for  this  place. 
Only  transitory  and  highly  improbable  conditions  can  be  conceived  in  which 
the  nation  would  get  in  revenue  as  much  as  its  citizens  lost  in  advanced 
prices. 

§  60     Important  Specific  Points 

i  Wayland,  P.  E.,  140.  Perry,  460  sqq.  Taussig,  Prot.  to  Young  Indtistries,  60,  64; 
Pres.  Tariff,  90.  Fawceit,  F.  Trade  and  Prot.,  chap,  ii,  pp.  9,  28.  ii  Fawcett, 
Manual,  390.  Farrer,  Free  T.  vs.  Fair  ['85].  Giffen,  Contemp.  Rev.,  June,  '85. 
Westm.  Rev.,  Feb.,'88.  Ad.  SmUh,\>V.\\,z\\.\\.  iii  i^rtwc*'//,  Man.,  386.  Walker, 
Wages,  44;  P.  E.,  470.    iv  Andrews,  Quar.  Jour.  Econ.,  Jan.,  '89. 

i  Bounties  1  offer  a  more  economical  means  of  en- 
couraging industry  than  duties,  as  by  them  i)  prices 
are  not  advanced,  2)  smugrgHug  is  not  induced,  3)  the 


lOO  INTERNATIONAL    EXCHANGE 

country  is  burdened  only  for  the  actual  production 
secured,  and  4)  all  the  cost  is  borne  at  home,  ii  *  Fair 
trade'  is  the  cry  of  a  party ^  in  England,  who  spe- 
ciously plead  that,  while  they  would  be  quite  willing  to 
forego  restriction  if  other  nations  would,  free  trade  is 
ruinous  save  on  this  condition  of  reciprocity.  But  for 
a  nation  to  lay  tariff  upon  imports  does  not  remedy,  it 
aggravates  instead,  the  loss  suffered  in  the  taxation  of 
its  exports  by  other  nations.  Offending  peoples  are 
punished,  but  the  chief  penalty  takes  effect  at  home. 
iii  Though  lowering  of  wages  may  not  spring  from  the 
mere  fact  of  using  foreign  labor,  since  free  importation 
does  not  employ  that  to  the  exclusion  of  domestic,^  may 
it  not  ensue  if  wages  abroad  are  lower  tlian  at  home  ? 
Never,  wages  in  general,*  and  not  necessarily  wages  in 
the  trades  in  question,  since  lower  nominal,  or  even 
lower  real,  wages  abroad  do  not  imply  smaller  cost  of 
labor  there.  And  even  in  industries  where  whole  cost 
of  labor  is  less  abroad,  home  laborers  have  nothing  to 
fear  from  foreign  competition,  provided  this  disadvan- 
tage is  offset,  as  is  often  the  case,  by  advantages.'^ 
iv  Contrary  to  free-traders'  usual  statement,  it  is  in 
certain  cases  possible  for  a  trade  combination  in  one 
country  to  crush  competitors  in  another  so  as  then  to 
put  up  prices,  or  for  an  international  trust  so  to  con- 
trol prices  as  to  render  the  customs  laws  of  all  coun- 
tries nugatory.  Such  results  bid  fair  to  be  henceforth 
more  and  more  common,  perhaps  the  rule,  that  regu- 
lation of  trade  hitherto  accomplished  by  nations  sepa- 
rately, through  tariffs,  necessarily  becoming  matter  for 
international  compacts.  Meantime,  while  free  inter- 
national competition  is  commonly  one  valuable  safe- 


INTERNATIONAL    KXCTIANGK  lOl 

j;uar<l  against  these  syndicates,  yet  where  one  of  them 
belonging  to  a  given  country  oi)i>rcsH«s  a  fo^-eitjii  land, 
the  latter  may  well  defend  its&lf-by-a  tariff. 

'  Alex.  Hamilton  in  his  famous  Repnf(  on  Miiii'/'a('.tdr4s<  tc  ihc  Ilnd 
Congress,  Dec.  25,  1791,  favored  bounties  as  against  customs  duties. 
.Schouler's  U.  S.,  vol.  i,  1S7.  In  18S5,  some  270,000,000  lbs.  of  sugar 
were  produced  in  the  U.  S.,  about  10  per  cent  of  the  consunii)lion. 
Average  cost  price  not  far  from  2.]  cts.,  average  duty  [encouragement] 
nearly  the  same.  I.e.,  we  paid  2]  cents  on  each  of  the  entire  2,700,000,000 
lbs.,  conferring  a  protection  equally  well  secured  by  a  l)ounty  of  the  same 
height  on  one-tenth  that  number  of  lbs.  —  a  loss,  so  far  as  protection  was 
concerned,  of  $60,750,000.  It  might,  of  course,  have  been  needed  for 
revenue,  but  as  a  matter  of  fact  was  not. 

■^  '  Keciprocitarians,'  Giffen  calls  them.  Even  when  retorsion  [§  57,  i, 
3)]  is  desirable,  it  is  a  costly  process. 

3  See  §  56,  V. 

*  Save  in  the  barely  conceivable  ways  allowed  in  §  59. 

^  Cf.  §  48,  and  n.  4.  Roscher  [Eng.  tr.],  vol.  i,  218,  n.  Distinguish 
the  2  cases,  i)  high  efficiency  to  labor,  keeping  pace  with  high  wages,  so 
that  cost  of  labor  is  as  low  as  with  smaller  wages,  or  lower;  and  ii)  high 
labor  cost,  compensated  by  specially  favorable  conditions  of  production  in 
other  respects,  so  that  whole  cost  of  production  is  no  greater.  Agricul- 
tural wages  are  higher  in  Australia  and  the  U.  S.  than  in  Europe,  owing  to 
the  advantages  of  rich  and  low-priced  lands.  Through  cheapness  of  grain, 
whiskey  is  manufactured  in  the  U.  S.  so  as  to  undersell  foreign  distillers 
all  over  the  world,  though  labor  here,  no  more  efficient,  is  paid  50  per  cent 
higher.  Eng.  factory  hands,  with  their  greater  skill,  better  climate  and 
machinery,  defy  competition  from  the  protected  '  pauper  labor '  of  the 
continent.  "  India,  where  the  cotton  spinner  gets  only  20  pence  a  week,  is 
flooded  by  the  cottons  of  England,  where  the  spinner  receives  20  shillings" 
[Walker].  Thomas'  Hist,  of  Pennsylvania,  1698,  p.  9,  says,  "  Poor  people, 
both  men  and  women,  will  get  near  3  times  more  wages  for  their  labor  in 
this  country  than  they  can  earn  in  either  England  or  Wales."  Of  course 
America  had  no  protection  then.  Hamilton's  Report  [n.  I,  above],  giving 
a  long  list  of  industries  already  established  in  America,  notes  the  then 
exceedingly  high  rate  of  .American  wages,  and  well  argues  that  that  need 
be  no  bar  to  successful  competition  with  Europe. 


CHAPTER   III 

VALUE:    GENERAL 

§  6 1     Value  and  Value 

Rpscher,  §§  4,  5.  Clark,  Philos.  of  Wealth,  ch.  v.  Dubos,  Theo.  de  Valeur,  your, 
des  Ecoit.,  Mch.,  1888  [cf.  ib.,  Sep.  and  Nov.,  '82,  Ap.,  '83].  Mill,  bk.  iii,  ch.  vi. 
fCnies,  Geld,  i.  Rae,  Contemp.  Socialism,  156.  Sharliug,  in  Conrad's  Jahi-b., 
Mch., '88.  Martello,  La  Moneta,  App.  \Volf,'\w  Zeiisck./.  gcsa?H.  Siaatsiu.,  ^2, 
Heft  3.  .Mars/iall,  in  Quar.  Jour.  Econ.,  vol.  i,  227,  359.  Cairnes,  Contemp.  Rev., 
'76;   Leading  Prin..  pt.  i.     Courcelle-Senenil,  Jour,  des  Econ.,  Ap.,  1883. 

The  term  value  bears  both  in  popular  and  in  eco- 
nomic speech  tliroc  incanini?s,  which  must  be  carefully 
distinguished  :  i  Utility  in  g-eneral,  the  power,  what- 
ever its  origin,  of  satisfying  human  needs.^  ii  Value 
in  use,  economic  value  proper,  the  useful  character ^ 
of  things  which  are  actually  utilized,  however  this  is 
estimated,  and  whether  they  are  destined  for  exchange 
or  not :  in  still  other  phrase,  the  immediate  significance 
which  things  possess  for  men's  economic  life,  iii  Value 
in  exfliange,  the  ratio  at  which  commodities  and  ser- 
vices pass  for  one  another  in  open  market.  The  second 
kind  of  value  is  nearly  identical  with  the  Avealth-char- 
acter  (jf  things  ;  usually,  therefore,  not  originating  gra- 
tuitously, though  it  may  also  attach  to  entities,  like  land 
proper,  which  are  not  wealth.  The  third  form  of  value 
is  closely  related  to  the  second,  being  the  resultant  of 
more  or  less  numerous  estimates  placed  by  human  minds 
on  the  relative  use-values  of  things.  Values  of  varieties 
ii  and  iii  hence  correspond  in  a  general  way,  though  by 


VALUE  103 

no  means  exactly.  In  practical  exchaiiffo,  we  obviously 
have  to  do  mainly  with  value  in  the  tliir<l  scn.se,-'^  but 
this  can  be  projDcrly  grasped  only  by  a  patient  analysis 
of  value  in  the  second. 

1  Ail-  and  water  in  general  have  this.  It  were  better  not  to  use  'value' 
to  name  the  idea,  but  only  '  utility.'  Ever  since  Adam  Smith  it  has  been 
common  to  identify  senses  i  and  ii.  Clearly  a  confusion,  since  the  mere 
power  to  serve  us  [potential  service]  is  not  the  same  as  actual  service,  or 
being  "in  use."  The  portions  which  we  [by  effort]  appropriate  have 
mofe  than  utility,  viz.,  value  in  use. 

■■^  See  §  I,  and  n.  6,  also  §  62.  Whatever  is  wealth  has  this  value,  of 
course.     The  other  things  which  possess  it  are  very  few  [§  28,  and  n.  3]. 

'  It  is  in  this  sense,  and  in  this  only,  that 

"The  value  of  a  thing, 
Is  just  as  much  as  it  will  bring"  [Butler].  Exchange- 
value  is  manifestly  in  no  sense  intrinsic  [§  62,  n.  i].  It  is  not  a  property 
of  all  wealth  [yet  see  §  l,  and  n.  7;  §  51,  and  n.  l],  but  only  of  such  as 
can  be  exchanged  [§  63],  and  reaches  beyond  wealth  just  as  value  in  use 
does  [last  note]. 

§  62     Value  in  Use 

Bonar,  Quar.  Jour.  Econ.,  vol.  iii,  5  sqq.  Jevoiis,  P.  E.,  ch.  iii.  IVieser,  Ursprung, 
etc.,  des  iinrlschaftlicheti  U'erthes.  liohm-Bawerk,  in  Ja/irb.  jf.  National- 
oekonomie,  vol.  xiii,  N.  F.  ['86] ;  Kapital,  etc.,  bk.  iii,  sec.  i.  Menger,  Volkswirt- 
schaftslehre,  77  sqq.     Roscher,  §§  4,  5.     Marx,  Capital,  pt.  i,  ch.  i. 

i  Objective  or  general,  the  ability  which  a  kind  of 
product  normally  has  to  produce  economic  effects. ^ 
ii  Subjective  or  personal,  the  power  which  a  given 
piece  of  wealth  possesses  to  gratify  a  particular  human 
being  at  this  or  that  time.  Not  only  men's  nature  at 
large  in  its  various  situations  has  here  to  be  allowed 
for,  but  all  manner  of  individual  peculiarities  still 
more.  Every  one  consciously  or  unconsciously  groups 2 
his  various  wants  in  a  certain  onlcr  of  imi>ortance,  and 
over  against  each,  its  satisfactions,  in  a  regular  scale  of 


I04 


VALUE 


degrees,  always  gratifying  first  the  hijjfhest  degrees  of 
his  foremost  wants,  though  probably  not  all  the  lower 
degrees  of  these  till  the  upper  degrees  of  less  important 
wants  are  met.  Ketreiu'liiueiit,  on  the  other  hand, 
begins  with  the  lowest  degrees  of  the  least  pressing 
wants,  working  upward  and  backward,  reaching  last  the 
things  absolutely  needful  for  life  itself.  The  value 
which  a  man  attaches  to  any  article  is  seen  from  the 
grade  and  degree  of  the  lowest  want  which  he  uses 
it  to  satisfy.^ 

1  Coal  has  heating  power;  food,  nutrient  power,  etc.  It  need  not 
mislead  to  style  objective  value  in  use  tn/rittsic,  though  it,  as  well  as  every 
other  form  of  value,  is,  strictly  speaking,  an  aftair  of  relation  [§  6i,  n.  3]. 

-  This  may  be  easily  understood  by  the  aid  of  the  following  diagram, 
adapted  from  Bohm-Bawerk  and  Menger :  — 


Degree 

I,  Food 

II,  Clothing 

III,   Lodging 

IV,  Luxuries 

First 
Second 
Third 
Fourth 

Necessary  for  life 

do         for  health 
Agreeable 
Still  less  keenly  so 

First  suit,  necessary 
Second  suit,  convenient 
Third,  desirable 

Abed 
A  room 

A     plate      of 

Fifth 

Still  less 

Fourth,  not  unacceptable 

A  suite  of  two 

cream 
Two  plates  of 

Sixth 

Satiety 

Fifth,  satiety 

or  three 
A  suite  of  four 
Satiety 

cream 
Three  plates 
Satiety 

The  supply  of  wants  proceeds  [irregularly,  and  this  in  different  ways  with 
different  persons]  downward  and  to  the  right;  retrenchment  upward  and 
to  the  left.  "The  difference  in  degree  of  importance  between  one  meal 
when  it  is  the  only  accessible  one,  and  one  meal  when  it  is  any  one  of 
five,  is  not  as  5  to  i,  but  as  infinity  to  i.  When  wc  draw  near  to  absolute 
necessity,  the  increase  in  importance  is  geometrical  rather  than  arithmeti- 
cal "  [Bonar,  as  above].  Even  when  a  thing  is  made  necessary  only  by 
some  pet  view  or  preference  of  the  individual,  its  importance  "  often 
increases  with  decrease  in  its  quantity,  in  far  greater  than  arithmetical 
proportion  "  [ibid.]. 

^  A  western  farmer  may  use  corn  to  eat  and  to  burn.     Then  its  fuel 
value  is  to  him  the  value  of  the  corn.     Subjective  value  is  thus  disclosed, 


VALUE  105 

not  by  its  utility  at  large,  but  by  its  Imvest  [often  called  final]  utility.  Let 
the  farmer  run  short  of  supplies  in  both  kinds,  the  fuel-use  of  his  corn  will 
be  foregone  the  earlier.  Notice  that  the  value  of  a  given  -uhole  is  not  told 
by  the  lowest  use  to  which  any  of  its  parts  arc  put,  but  by  the  lowest  use 
made  of  it  as  a  whole.  Each  of  several  interchangeable  and  equally 
worthful  parts  reveals  the  estimate  its  owner  places  on  it  by  the  lowest  use 
he  makes  of  any.  The  value  of  an  article  to  you  is  also  revealed  by  the 
utility  to  you  of  what  you  are  willing  to  give  for  it. 

§  63     Value  in  Exchange 

The  authh.  at  §§  61,  62.  Also, /'^rry,  ch.  iii.  jl/ai-/^<7rf,  Elements,  ch.  ii.  Bagehoi,'Ec. 
Studies,  loi  sqq.  liliU,  bk.  iii,  r,h.  ii.  Cide,  La  Nption  de  la  I'aleur  dans  Bastiai, 
Rev.  d.  Econ.  poL,  Mai-Juin,  '87.     Marx,  pt.  i,  ch.  ii.     Sidgwick,  bk.  ii,  ch.  ii. 

From  these  variatiou.s  of  value  in  use  according:  to 
persons,  places,  and  times,  spring  the  phenomena  of 
exchange  ^  and  value  in  exchange.  To  be  valuable  in 
exchange,  a  ware  or  a  service  must  of  course  have  sus- 
ceptibility ^  to  exchange,  as  well  as  utility.  A  single 
case  of  value  in  exchange  always  presupposes  two 
persons  and  two  fourfold  estimates,  each  party  sub- 
jectively valuing  what  he  offers,  and  the  suggested 
return,  at  the  same  time  surmising  how  both  are  val- 
ued by  the  other.  These  estimates  are  determined  by 
a  great  variety  of  circumstances  :  knowledge  or  beliefs 
touching  the  conditions  of  production,  the  number  of 
would-be  buyers  or  of  would-be  sellers,  or  the  value  in 
use  of  the  article  in  question  to  any  or  all.  When 
many  potential  exchangers  come  into  vicinity,  forminj? 
a  market,^  the  market  rate  of  exchange  at  that  given 
time  is  fixed  by  the  estimates  of  the  weakest  actual 
buyers  and  the  weakest  actual  sellers. 

^  But  for  the  different  scales  and  degrees  of  value  [§  62,  n.  2]  put  by 
different  parties  upon  one  and  the  same  thing,  exchange  would  be  un- 
known.    See  §  52. 


io6 


VALUE 


-  Our  intellectual  capital  cannot  be  exchanged,  though  many  of  its 
products  may  be.  It  is  capital,  and  wealth,  and  has  value  [in  use],  none 
the  less  [§  i,  n.  6]. 

^  This  is  the  most  interesting  case.  On  what  forms  a  '  market,'  Bagehot, 
Ec.  Studies,  iii  [Ad.  Smith];  Cairnes,  Leading  Prin.,  17-40;  Thornton, 
Labour,  bk.  ii,  ch.  i;  Mill,  bk.  iii,  ch.  ii;  Bonar,  Quar.  Jour.  Econ.,  vol. 
iii,  15.     Bonar  has  this  diagram: 


Would-be  Sellers 

(subjectively) 
B'  values  his  horse  at  £,-zo 


Wot- 

LD-BE 

Buyers 

(subjcc 

ively) 

A'  values  a  horse  at  £jbo 

A=      " 

56 

A»      " 

52 

A«      " 

48 

A-      " 

"              44 

Ao      " 

42 

A-      " 

40 

A»      " 

36 

A»      " 

34 

A'o    " 

30 

B^ 

'             22 

B^ 

30 

B* 

34 

B'- 

'             40 

B» 

43 

B' 

SO 

B8 

52 

The  horses  are  supposed  to  be  of  the  same  quality.  The  As  and  the  Bs 
are  '  strong '  in  proportion  to  their  eagerness  to  buy  or  to  sell :  i.e.,  those 
willing  to  give  the  highest  prices  are  the  strongest  buyers,  those  willing  to 
take  the  lowest,  the  strongest  sellers.  Assuming,  what  is  likely  to  happen, 
that  the  parties  on  both  sides  effect  exchanges  something  in  the  order  of 
their  strength,  5  trades  and  only  5  will  be  made,  viz.,  between  the  As^"" 
and  the  Bs*"*.  A**  will  give  but  42,  which  is  under  the  figure  demanded 
for  any  of  the  three  horses  remaining.  B*"'  asks  43,  too  high  for  any 
would-be  buyers  who  are  left.  A^  is  willing  to  give  44  or  less,  B-*  to  take 
40  or  more :  the  market  value,  till  the  conditions  change,  rests  at  one  or 
the  other  of  these  figures,  or  between.  A''  is  in  this  case  the  weakest 
buyer,  B''  the  weakest  seller,  the  two  constituting  the  *  terminal  pair.'  On 
the  worst  day  of  the  snow  blockade  in  N.  Y.  City,  Mch.  13,  1888,  Tiffany 
sold  only  80  cents'  worth  of  goods;  a  certain  retail  grocer,  $10,000  worth. 
Tiffany  could  not  that  day  have  raised  his  prices  at  all ;  the  grocer  could 
probably  have  doubled. 


VALUE  107 


§  64     Price 

Marx,  Capital,  pt.  i,  ch.  i,  sec.  3.  Mangohit,  §§  63-74.  Gamier,  Traiii,  667  sqq. 
iJ/ariAa//,  Conlenip.  Rev.,  Mch.,  1887.  Lf.iir,  I'ierteljahrsch.  /.  i'olkswirisch., 
xxvi,  i,  2.     Roscher,  §§  100,  loi.     Bohm-lia'jie rk ,  Kapilal,  etc.,  bk.  iii,  sec.  ii. 

When  of  any  article  the  value  is  expressed  in  terms 
of  some  other,  that  other  may  be  called  the  '  value- 
form '  of  such  article.^  The  most  common  value-form 
attached  to  goods  is  money,  and  the  money  value-form 
is  price.  It  will  be  seen  that  while  general  rises  and 
falls  of  prices  frequently  occur,^  such  an  event  mean- 
ing only  a  change  in  the  purchasing  power  of  money, 
to  speak  of  a  general  rise  or  fall  in  exchange-values 
would  be  a  contradiction  in  terms. 

^  When,  e.g.,  it  is  said  that  '  a  bushel  of  wheat  is  worth  a  dollar,'  the 
expression  is  by  no  means  an  equation,  though  involving  the  idea  of  one. 
The  terms  could  indeed  Ije  reversed  without  falsehood,  but  not  without 
altering  the  meaning. 

-  Greatly  infringing  justice  and  discouraging  trade.  See,  later,  §  87,  on 
Ideal  Money. 


§  65     Normal  Value  in  Exchange 

Cairnes,  Leading  Principles,  pt.  i,  chaps,  iii,  iv.      Ad.  Smith,  bk.  i,  ch.  xi.      Mill, 
bk.  iii,  chaps,  ii-iv.    Maine,  Village  Communities,  vi.     Senior,  Pol.  Econ.,  101,  102. 

Of  the  commodities  producible  at  will  in  indefinite 
amounts,  much  the  larger  part  of  all,  market  values 
and  prices^  are  not  fixed  ultimately  by  the  influences 
mentioned  at  §  63,  but  by  cost  of  production,  or,  more 
strictly,  that  of  reproduction,-  This  cost  may  be  styled 
the  normal  value  of  commodities.  Around  it  market 
values  and  prices  will  hover,  sometimes  higher,  some- 
times lower,  according  to  circumstances,  but  never  for 


lOS  VALUE 

any  considerable  period^  very  far  away.  If,  in  the  case  of 
a  given  article,  different  portions  of  the  necessary  supply 
offered  in  one  and  the  same  market  have  unlike  costs 
of  production,  normal  value  coincides  with  the  dearest 
cost  involved.*  Things  like  heirlooms,  paintings  of  old 
masters,^  etc.,  which  cannot  be  duplicated,  are  subject 
to  no  law  of  normal  value,  but  command  a  higher  price 
or  a  lower  purely  according  to  the  relations  between 
supply  and  demand.'' 

^  Why  mention  ' market  values ' ?  Why  is  not 'prices' sufficient?  Be- 
cause the  law  would  hold  equally  if  money  had   never  been   invented 

[§64]. 

2  See  §§  47,  48.  If  classes  of  goods  be  taken,  cost  of  reproduction  and 
of  production  will  not  vary  much.  The  strictly  ultimate  determinant  is  the 
metaphysical  cost  [§  47].  Cf.  Hyndman,  Hist.  Basis  of  Socialism,  105. 
The  discussion  contemplates  primary  sales,  viz.,  by  growers  or  manufact- 
urers themselves.  Cost  of  production  at  the  retail  stage  of  the  process 
includes  allowances  for  handling,  tare  and  tret,  interest,  storage,  etc.  Cf. 
§  69,  ii- 

2  Though  temporarily  perhaps  a  good  deal  above  or  below  [scarcity 
prices].  During  the  snow  blockade,  Mch.  15, 1888,  milk  sold  in  N.  Y.  City 
for  $5  and  $6  per  can  of  40  qts.  The  next  day  it  had  fallen  to  ^l.  Henry 
George  found  flour  at  the  Frazer  River  gold  diggings,  in  1858,  worth  #1.50 
a  lb.;  bacon,  $3.  To  Purchas's  'Pilgrimes'  [vol.  i,  118,  133,  275,  417:  sec 
Tylor's  Early  H.  of  Mankind,  223]  the  natives  of  Madagascar  were  glad  to 
pay  a  sheep  for  is.  silver;  a  cow  for  35.  61/.  At  Saldanha  Bay,  on  the  west 
coast  of  Africa,  in  1598,  the  natives,  ignorant  how  to  work  iron,  offered 
John  Davis  fat  sheep  and  bullocks  for  nails  or  bits  of  old  iron.  In  1604 
a  huge  bullock  was  to  be  bought  there  for  a  piece  of  iron  hoop.  If  com- 
petition is  free  [Senior,  102],  variation  from  cost  of  production,  in  an 
article  whose  price  is  determined  by  this,  always  lends  to  annihilate  itself. 
If  prices  exceed  this  cost,  production  will  be  the  more  profitable,  and  hence 
copious;  if  they  are  below  it,  production  falls  off. 

*  An  important  principle.  See  on  Rent,  in  Part  IV.  All  the  wheat  of  a 
given  fjuality  for  sale  in  Chicago  bears  the  same  price,  whether  from  poor 
land  or  rich,  raised  with  good  machinery  or  none.  Block  Island  poultry, 
though  produced  at  less  than  normal  expense,  brings  in  Providence  as  high 


VALUE  109 

prices  as  any.  When  demand  diminishes,  the  costlier  parts  of  the  supply 
are  dispensed  with  first,  and  the  normal  value  falls  [cf.  §  27,  n.  3]. 

"*  And  some  others.  See  §  6S  and  §  69,  i.  Cf.  below,  n.  6.  On  prices 
of  monopolized  wealth,  §  66.  The  famous  sermon  preached  by  John  Knox 
at  Edinburgh,  in  Auj^ust,  1565,  "for  the  whiche  he  was  inhil)itc  preaching 
for  a  season,"  was  sold  recently  for  $2,075.  ^^  ^^'•'^  years  ago  a  Madonna 
by  Murillo  brought  in  Taris  615,300  francs.  One  Banks,  in  N.  V.  City, 
sold  from  his  arm,  for  transfusion  into  the  veins  of  an  asphyxiatcil  patient, 
8  ounces  of  blood,  containing  240  drops  each,  for  lO  cents  a  drop  :  —  $192. 
Gen.  K.  B.  Marcy  has  seen,  in  camp  on  the  plains,  $10  offered  for  a  quid 
of  tobacco.  Consul  L.  Mummius,  having  conquered  Corinth,  148  or  147 
B.C.,  on  sending  the  pictures  and  statues  to  Rome,  told  the  sailors  that  if 
they  lost  or  injured  any,  they  must  furnish  others  of  equal  value.  r)ne  of 
the  choicest  works  of  the  painter  Aristides  he  let  them  use  as  a  draught- 
board [Liddell,  Rome,  479]. 

•^  Mangoldt,  §§  64-66.  Demand  differs  from  mere  desire.  It  is  this 
coupled  w  ith  the  necessary  goods  or  credit.  Supply,  too,  is  more  than  the 
simple  existence  of  commodities.  Their  owner  must  be  willing,  at  some 
rate,  to  exchange  them.  Cf.  §  63,  also  Cairnes,  pt.  i,  ch.  ii.  The  market 
value  of  all  things  at  times  and,  to  an  extent,  of  all  ordinary  commodities 
at  all  times,  is  regulated  by  the  equation  between  supply  and  demand. 
Inequality  at  any  moment  between  these  is  equalized  by  readjustment 
of  value.  Demand  increasing,  value  rises;  diminishing,  it  falls.  Supply 
diminishing,  value  rises;  increasing,  it  falls.  The  rise  or  the  fall  con- 
tinues until  demand  and  supply  are  again  equal,  "and  the  value  which  a 
commodity  will  bring  in  any  market,  is  no  other  than  the  value  which,  in 
that  market,  gives  a  demand  just  suftkient  to  carry  off  the  existing  or 
expected  supply."  Mill,  bk.  iii,  ch.  ii,  §§  2,  3,  4.  On  de  Molinari's  law 
respecting  the  ratio  at  which  change  in  supjjly  acts  on  price,  §  15,  n.  5. 
The  law  is  as  follows :  "  \Vhen  the  relation  of  the  quantiiies  of  two  prod- 
ucts or  services  offered  in  exchange,  varies  in  an  arithmetical  ratio,  the 
relation  of  the  values  of  those  two  products  or  services  varies  in  a  geo- 
metrical ratio  "  IJour.  des  Aeon.,  Feb.,  1SS9,  iSS].  When  the  N.  Y.  Trib- 
une reduced  the  price  of  its  copies  from  4  to  3  cents,  25  per  cent,  its 
circulation  increased  30  per  cent,  though  income  therefrom  fell  off  [as 
stated]  19  per  cent.  The  Times  reduced  from  4  to  2  cents,  50  per  cent, 
gaining  130  per  cent  in  circulation  and  15  per  cent  in  income. 


CHAPTER    IV 
value:   peculiar  problems 
§  66     Competition  a\d  Value 

Cairnes,  Leading  Principles,  Harper's  ed.,  87  sqq.  Sidgwick,  bk.  ii,  cli.  ii.  Ingram, 
Hist,  of  P.  E.,  158.  Clark  iS*"  GiddingSy  Mod.  Distrib.  Process,  chaps,  i,  ii.  liage- 
hot.  Postulates  of  P.  E. 

That  market  value  should  absolutely  conform  to  cost 
of  production,  in  the  way  just  described,  would  pre- 
suppose (i)  general  information  touching  all  cases  of 
profits,^  (ii)  equality  of  advanta!;e  among  competitors, 
and  (iii)  perfect  mobility  of  labor  and  capital.^  Such 
conditions  are  rarely  if  ever  realized^  save  in  a  very 
imperfect  way.  As  to  labor,  not  only  do  poverty, 
ignorance,  their  distance  apart  and  differences  of 
speech  keep  people  from  full  competition,  but  not  all 
those  of  a  given  vicinity  compete  for  all  positions.  In- 
stead, we  everywhere  find  an  arrangement  of  groups^ 
and  stib-gronps,  according  to  occupation,  ability,  and 
training,  Avithin  each  of  which  there  is  competition,  be- 
tween which,  little  or  none.  The  tendency  of  trades- 
unions  is  to  check  competition  still  more.  Capital,  too, 
crowds  capital  only  in  proportion  as  (i)  it  remains  free 
or  non-specialized,^  (ii)  profits  are  known,  and  (iii)  mo- 
nopoly is  prevented.  A  monopoly  may  be  kept  up 
either  by  the  action  of  government,  or  by  the  sheer 
mass  (A  wealth  behind  it  •* 


VALUE  :  PECULIAR  PROBLEMS 


II  I 


1  As  sucn  knowledge  is  rarely  direct  or  exact,  and  always  incomplete, 
statements  about  the  proportion  of  national  income  taking  the  form  of 
profits  are  little  Ijut  guesses.  Rate  of  interest  is  no  guide.  Thus,  ignorant 
of  each  other's  prosperity,  businesses  will  not  uniformly  so  compete  as  to 
keep  selling  prices  the  closest  possible  to  cost.  Absence  of  (ii)  and  (iii) 
would  also  help  prevent  this. 

•^  The  fundamental  postulate  of  English  Economics,  which,  however, 
Bagehot  correctly  declared  only  hypothetically  true  for  much  of  modern  Eu- 
rope, and  not  true  at  all  for  primitive  society.  He  was  mistaken  in  sup- 
posing that  it  would  ever  accord  with  facts  in  other  than  a  general  way. 

8  Usually,  therefore,  all  that  can  be  said  is  that  products  tend  to  sell  at 
cost  of  production  [§  65,  n.  2].  The  law  is,  however,  little  less  valuable 
because  inexact. 


.2     3    -    y 
o.    3    ?    2 


"      a      «      3      5 

(O         ?        *-        C  »* 


responsible 
brain  workers 

automatic 
brain  workers 

responsible 
manual  labor 

automatic 
manual  labor 


T 

! 

i     i         1 

;        1 

— 

1 

1     ' 

j 

iroi 

1  and  s 

teel 

ore 

This  diagram,  modified  from  Giddings,  as  above,  shows  by  way  of  ex- 
ample the  non-competitive  grouping  in  the  iron  and  steel  industry.  Ob- 
serve that  competition  is  more  widely  possible  the  lower  the  grade  of 
labor.  Ore-diggers  [imskilled]  and  smelters  may  compete  with  the  lowest 
iron  and  steel  workers,  and  both  with  the  automatists  engaged  upon  final 
products.  Higher  up,  work  is  mostly  more  specialized.  Notwithstand- 
ing all  the  above,  a  degree  of  competition,  defying  the  lines  of  classes 
and  industries,  still  persists  through  the  supply  of  youthful  laljorers  con- 
tinually coming  on  to  the  stage,  choosing  this  calling  or  that,  as  oflfers 
best  remuneration.  Machinery  and  education  extend  the  scope  of  this 
process. 

*  Cf.  §  29,  notes  6,  7. 

8  Those  who  deny  the  possibility  of  maintaining  a  monopoly  in  the 
last  way  named,  overlook  (i)  the  extent  to  which  profits  are  concealed, 
(ii)  the  progressive  immunity  from  competition  which  comes  with  innncn- 


112  value:  peculiar  problems 

sity  of  resources  and  specialization  of  plant,  and  (iii)  the  temptation  of 
formal  competitors  not  to  become  real  ones,  they  sharing  all  the  advan- 
tages from  the  elevation  of  prices  [next  §,  and  its  n.  4]. 


§  6"]     Monopoly  Value 

Sidgwick,  bk.  ii,  ch.  x.     Marshall,  Ec.  of  Industry,  i8o  sqq.     Senior,  Pol.  Econ.,  103- 
114.     Sumner,  Essays,  46.     Quar.  Jour.  Econ.,  vol.  iii,  143. 

Monopolies  may  be  natural  or  artificial,^  exclusive  ^ 
oi*  partial.  A  monopoly,  again,  whether  complete  or 
not,  may  be  in  an  article  whose  production  can  be 
swollen  (i)  not  at  all,  (ii)  indefinitely,  but  at  increasing 
cost,  or  (iii)  indefinitely  at  the  same  or  lessening  cost.^ 
The  monopolist's  power  will  vary  accordingly,  but  it  is 
important  to  mark  that  he  need  never,  in  order  to  dic- 
tate sale  prices,  control  the  entire  production.*  In 
case  of  a  product  so  monopolized,  the  price  is  fixed  not 
by  cost  but  by  men's  necessity.  It  goes  higher  and 
higher  till  demand,  and  hence  profit,  begins  to  fall  off, 
and  then  plays  about  the  line  of  vebat  the  market  will 
bear,  just  as  in  other  cases  about  that  of  cost.  The 
monopolist  can  be  more  or  less  exacting  according  to 
the  nature  of  the  product.  If  it  is  a  luxury,  he 
extorts  little ;  if  a  necessity,  he  may  bleed  consumers 
to  death.^ 

^  Government  is  a  monopoly,  natural  and  exclusive.  A  railroad,  once 
created,  has  a  natural,  though  incomplete,  monopoly  of  its  strictly  way 
traffic  —  natural  in  that,  power  once  given  it  to  be  a  railroad,  monopoly 
arises  without  further  legislation;  incomplete,  since  means  of  possible 
competition  remain.  Land-holding,  be  it  private  or  communal,  naturally 
involves  monopoly.  So  the  ownership  of  mines,  water-power,  and  the 
like.  The  legislation  granting  the  titles  in  such  cases  does  not  create,  it 
merely  assigns,  the  monopolies.  But  when,  as  so  often  under  Eli/.aljeth 
anfl  James  I,  public  power  grants  the  exclusive  right  to  manufacture  or 


value:  peculiar  problems        113 

sell,  the  monopoly  originates  in  the  grant  [artificially],  not  in  the  nature 
of  the  case. 

2  "  Conslanlia  (wine)  owes  its  peculiar  flavor  to  the  agency  of  a  few 
acres  of  ground,  and  would  be  destroyed  if  high  cultivation  were  employed 
to  force  from  that  ground  a  larger  quantity  of  wine.  No  person  but  the 
proprietor  of  the  Constantia  farm  can  be  a  producer"  [Senior,  P.  E.,  104]. 
Not  so  a  railway.     If  it  is  too  extortionate,  some  people  will  use  wagons. 

'^  The  owner  of  Constantia  [n.  2]  illustrates  (i) ;  the  proprietor  of  a  rare 
mine,  (ii)  :  see  §  34;  the  patentee  of  a  manufacturing  machine  or  pro- 
cess, (iii). 

*  Immediate  mastery  of  a  decided  majority  is,  as  regards  dominating 
the  price,  the  mastery  of  all.  That  i.s,  competition  with  a  partial  monopoly 
is  formal  only,  and  it  does  not  become  real  until  competitors  attain  power 
to  supply  the  entire  market.  The  law  of  dearest  cost  [§  65  and  n.  4]  has 
here  one  of  its  applications.  For  illustrations,  Quar.  Jour.  Econ.,  vol.  iii, 
142  sq.    Cf.  above,  §  66,  n.  6. 

^  "The  price  cannot,  of  course,  fall  below  the  cost  of  production,  but 
may  indetinitely  e.xceed  it.  .  .  .  If  fashion  were  to  make  it  an  object  of 
intense  desire  among  the  opulent,  a  pipe  of  Constantia  [n.  2],  costing 
perhaps  /^20,  might  sell  for  ;[{^20,oc)0  "  [Senior].  Imagine  a  monopoly 
over  quinine  in  a  typhoid  epidemic.  The  parlor  and  sleeping-car  service 
is  a  monopoly  in  a  luxury.  Rates  must  be  moderate,  else  people  will  take 
the  ordinary  coaches. 


§  68     Values  between  Non-Competing  Groups 

AfM,  bk.  iii,  ch.  xviii;  Essay  i,  on  Unsettled  Questions.  Cairnes,  Leading  Principles, 
pt.  i,  ch.  iii,  §  7.  Sidgwick,  bk.  ii,  cli.  iii.  Cherbidiez,  bk.  ii,  ch.  viii.  Nichol- 
son, Money  and  Mon.  Problems,  ch.  vii.     Fawcett,  Manual,  390  sqq. 

Products  whose  creators  do  not  compete,  exchange 
not  in  proportion  to  their  costs  of  production  but 
purely  according  to  the  conditions  of  reciprocal  de- 
mand. International  commerce  ^  best  illustrates  this. 
At  the  opening  of  a  trade  between  two  countries  there 
is  usually  a  8:rcater  demand  in  one  direction  than  in 
the  other,  at  the  prices  first  asked.  Then  the  com- 
modity, or  line  of  commodities,  least  in  demand  must 


114  value:   peculiar  problems 

be  sold  lower,  or  the  trade  cease,  and  this  every  time 
demand  becomes  slack  for  any  commodity  at  the  old 
price.  If  the  demanded  reduction  still  leaves  a  profit, 
the  exchange  will  go  on ;  if  not,  not ;  but  so  long  as  it 
does  go  on,  there  is  always  a  tendency  toward  an  equa- 
tion of  international  demand.  The  cost  of  ocean 
freig-htag-e  rarely  falls  with  equal  weight  on  both  coun- 
tries. It  is  the  heavier  on  that  one  the  demand  for 
whose  commodity  is  the  more  diminished  by  it  from 
what  such  demand  would  be  were  there  no  charge  for 
freightage,  and  in  proportion  to  that  diminution.  The 
same  principles  govern  among  domestic  groups  not  in 
competition.  Whatever  increases  the  demand  of  any 
one  for  outside  products,  or  its  supply  of  things  available 
for  the  purchase  of  them,  renders  less  favorable  the 
terms  on  which  it  will  have  to  exchange,  and  vice  versa; 
while  all  that  swells  outside  demand  for  its  products, 
or  lessens  its  supply,  meliorates  for  it  the  conditions  of 
exchange,  and  vice  versa. 

1  The  principle  of  this  section  has  ramifications  difficult  to  follow,  whose 
explication  would  be  too  lengthy.  Mill's  treatment  [as  above]  is  the  best, 
to  be  read  with  Cairnes's  reminder  that  the  essential  subject  is  broader 
than  Mill  saw,  covering  much  domestic  traffic,  as  well  as  tliat  which  crosses 
national  boundaries.  The  main  point  to  observe  is  that  an  exchange  in 
such  cases  may  profit  the  two  parties  very  unequally. 

§  69    Complex  Cases  of  Value 

Mill,  bk.  iii,  ch.  xvi. 

i  Wastes  utilized  for  purposes  other  than  gain,  also 
the  products  of  labor  incidental  to  main  callings,  usually 
sell  at  prices  which  are  independent  of  tl]eir  costs, 
ii  When,  as  often,  there  is  for  any  commodity  or  service 


value:  peculiar  problems  115 

a  small,  tlioujfli  iMTiuanent  dcinainl,  that  cost  of  pro- 
duction which  determines  prices,  must  be  construed  to 
include  such  items  as  insurance,  risk,  interest,  storage, 
lessened  economy  in  labor  force,  and  the  like,  iii  Many 
a  single  process  of  production  yields  a  main  and  a  by- 
product, as  gas  and  coke,  or  a  cluster  of  joint  products, 
as  chickens  and  eggs,  or  beef,  hides,  and  tallow.  Cost 
of  production  will  then,  supposing:  competition,  deter- 
mine the  value  of  the  total  product  in  relation  to  other 
Vhinss,  but  not  of  one  of  its  elements  in  relation  to 
another  or  others.  Their  relative  values  will  be  such 
as  to  keep  the  relative  demand  for  them  proportionate 
to  the  relative  natural  supply^  of  them,  iv  Soil  which 
can  grow  either  of  two  grains  is  often  the  better  suited 
to  one.  In  such  cases,  (i)  if  demand  forces  both  on  to 
intermediate  soil  equally  good  for  both,  their  general 
costs  here  will  fix  their  general  values,  and  their  rela- 
tive costs  their  relative  values;  (ii)  if  either  has  to  be 
grown  on  the  soil  best  fitted  for  the  other,  this  other  will 
become  cheaper,  and  the  alien  crop  dearer,  in  propor- 
tion to  the  stress  so  created. 

1  By  cheapening  the  one  less  in  demand,  or  raising  the  other,  or  doing 
both.  Suppose  a  special  demand  for  coke.  It  can  only  be  met  by  pro- 
ducing more  gas.  To  market  this  its  price  must  be  lowered,  though  the 
cost  of  production  of  it,  by  itself,  has  not  altered.  Make  other  suppositions 
and  carry  through  the  analysis. 

§  70     A  Measure  or  Exchaxge-Value^ 

Mill,  bk.  iii,  ch.  xv.  Marshall,  Contemp.  Rev.,  vol.  51,  354  sqq.  Jevons,  Money  and 
the  Mcch.  of  Exchange,  ch.  xxv.  Yves  Gnyot,  Sci.  Economique,  bk.  iii,  ch.  ii. 
Mangoldt,  §§  75  sqq. 

While  labor,  corn,  money,  or  any  other  service  or 
commodity,  will  servo  as  a  measure  of  the  relative  val- 


ii6  value:   peculiar  problems 

ucs^  of  particular  things  at  a  given  time  and  place,  or  of 
the  eliaiiji:os  in  these  between  different  times  and  places,^ 
no  even  approximate  gauge  of  exchang-e- value  in  gen- 
eral is  furnished  by  nature.  Art  itself  could  not  make 
such  a  measure  perfectly  accurate ;  but  a  compound 
standard,^  formed  by  adding  the  values,  ascertained  from 
period  to  period,  of  fixed  amounts  and  qualities  of  the 
world's  staple  commodities,  each  allowed  weight  accord- 
ing to  the  quantity  of  it  consumed,  would  closely  meet 
the  requirement/''  Then,  by  carefully  expanding  and 
contracting  the  currency,  money  could  be  kept  in  con- 
formity with  such  composite  standard,  thus  realizing  a 
measure  of  general  value  in  one  single  commodity.^ 

^  The  problem  concerning  a  measure  of  value  in  use  [§  62]  is  very  dif- 
ferent. See  Clark,  Philus.  of  Wealtli,  89.  He  thinks  even  that  not  in- 
soluble. So  Friedlander,  Theorie  d.  Werthes  [1852].  Ad.  Smith's  idea, 
bk.  i,  ch.  V,  where  he  argues  for  labor  as  a  measure,  is  not  exclusively  tliat 
of  exchange  value.  This  theory  of  Smith,  Franklin  had  stated  and  avowed 
so  early  as  1752.  To-day  the  socialists  are  its  great  champions.  Rae, 
Contemp.  Socialism,  94  sq.,  152  sq.  Value,  says  Marx,  is  neither  v.  in  use 
nor  V.  in  exchange,  but  labor-quality. 

-  If  one  thing  is  worth  2  bushels  of  wheat  and  another  3,  the  first  is 
obviously  worth  'i  as  much  as  the  second.  The  same  if  iron,  coal,  or  money 
had  served  as  measure.  But  after  any  lapse  of  time  you  could  not  reckon 
from  mere  equality  in  value  between  the  first  and  2  bushels  of  wheat,  that 
it  was  still  worth  3  the  second.  The  value  of  wheat  itself  might  have 
altered.     See  next  n. 

3  If  a  bushel  of  wheat  would  buy  a  day's  farm  labor  in  1850,  and  only  § 
of  this  in  1870,  we  know  that  wages,  in  terms  of  wheat,  went  up  during 
that  double  decade  in  the  ratio  of  2  :  3,  or  50  per  cent.  But  whether  wages 
rose  in  general  purchasing  power,  neither  wheat,  gold,  nor  any  other  com- 
modity, left  to  natural  fluctuations,  would  reveal. 

*  See  Jevons,  as  above.  He  has  wrought  out  the  general  idea  more 
fully  in  his  Investigations  in  Currency  and  Finance,  section  ii. 

'•'  In  denying  that  we  "can  even  suppose  any  state  of  circumstances  in 
which  this  would  be  true,"  Mill  does  not  take  account  of  the  possibility 


value:  peculiar  ri«ji5Li:MS  117 

here  set  forth.  Mis  is  the  common  idea.  See  Fix,  jfour.  des  Aeon.,  1844, 
IX,  12.  So  Ricardo  wrote,  in  Proposals  for  an  Economic  and  Secure 
Currency,  sections  i,  iii,  "  against  such  variation  there  is  no  possible 
remedy." 

^  See  later,  §  85.  Mill,  as  above,  well  charges  us  to  distinguish  between 
a  measure  of  value  and  a  regulator  or  determitiant  of  value,  such  as  cost 
of  production  is.  To  conceive  a  measure  of  cost  of  production  Mill  [ibid.] 
thinks  not  difficult,  though  no  such  is  forthcoming  in  nature. 


§  71     The  Value  of  Futures 

Bohm-Bawerk,  Kapital  u.  Kap.-zins,  vol.  ii,  bk.  iii,  sec.  iii.  Gross,  '  Zeit  in  d.  I'olks- 
ivirisch.,' m  Zeitsch.  /.  die  gesant.  Staatsw.,  1883,  126  sqq.  Jevons,  Theo.  of 
P.  E.  Mill,  bk.  i,  ch.  xi.  Menger,  as  at  §  62,  127  sqq.  Sax,  GrundUfciing, 
178  sqq.,  313  sqq. 

i  Owing  to  (i)  the  productive  power  of  present  goods 
meantime,  (ii)  *bur  uncertainty  about  future  demand 
and  supply,  and  (iii)  our  undervaluation  of  future 
pleasures  and  pains,  future  goods,  per  unit  of  quan- 
tity and  quality,  have  for  most  men  a  lower  subjective 
value  in  use  than  present  goods,  ii  From  these  sub- 
jective valuations  arise  corresponding  objective  values 
and  market  prices,  which,  reacting  upon  present  goods, 
raise  the  subjective  exchange  valuations  of  these  even 
for  the  few  in  whose  mere  personal  estimation  futures 
might  have  seemed  superior,  iii  The  levelling  ten- 
dencies of  the  market  then  bring  it  about  that,  barring 
special  causes  of  disturbance,  futures  will  in  the  market 
bear  prices  less  than  those  of  similar  spot  articles,  by 
a  figure  proportioned  to  the  degree  of  their  futurity.^ 

1  This  is  the  very  valuable  pith  of  what  is  strictly  original  in  Bcilim- 
Bawerk's  book.  The  thought  is  wrought  out  with  great  thoroughness  in 
his  section  cited  above,  and  must  henceforth  be  regarded  as  an  integral 
principle  of  Economics.  For  his  application  of  it  to  the  problem  of  inter- 
est, see  §  109. 


Part    III 


MONEY  AND    CREDIT 
CHAPTER   I 

THE    NATURAL    HISTORY    OF    MONEY 

§  72     Barter 

Knies,  Geld,  i.     Jevons,  Mo.  and  the  Mech.  of  Exchange,  ch.  i.      Aristotle,  Politics 
bk.  i,  ch.  ix.     Nicholson,  Mo.  and  Mon.  Problems,  17.     Macleod,  Elements,  120. 

Barter  is  a  form  of  traffic  in  which  commodity  passes 
for  commodity  without  any  use  of  money  or  other  tool 
of  exchange.  The  infeHcities  of  barter-exchange  con- 
fine it  in  the  main  to  the  societies  that  are  the  least 
civilized  and  productive.^  The  chief  drawbacks  are 
i  Necessity  of  setting  a  price  to  every  commodity  in 
terms  of  every  other.^  ii  Want  of  suhdivisibility  in 
most  articles.*^  iii  Limited  correspondence  between 
needs  and  commodities  or  services.  A  special  degree 
of  this  evil  exists  in  the  case  of  the  laborer,  who  can 
work  only  for  such  as  have,  and  will  spare,  the  things 
needed  for  his  support.  When  money  of  account  is 
used  to  reckon  in,  yet  no  money  ever  passes  hands,  we 
may  call  the  practice  quasi-barter.* 

1  Although  it  has  nowhere  ceased  entirely.  Swapping  horses  or  knives, 
changing  works  or  teams  [among  farmers],  taking  cows  or  work  animals 
for  their  keep,  commonly  involve  no  thought  of  money.     Macleod  con- 


THE    NATURAL    HISTORY    OF    MONEY  I  I9 

sidcrs  the  society  described  by  Homer  still  in  a  state  of  barter.  Iliad,  ii, 
448,  vi,  234,  vii,  468,  xxiii,  703.  It  was  primitive  money  [next  §]  rather, 
but  the  passages  usefully  illustrate  the  evil  phases  of  barter. 

2  Between  100  articles  no  less  than  4950  possible  ratios  of  exchange 
exist,  all  which  a  retailer  on  the  truck  system  would  constantly  have  to 
keep  run  of.     With  money,  the  number  reduces  to  too. 

3  Many  could  not  be  divided  at  all,  others  not  without  impairing  or 
destroying  their  value. 

*  The  line  between  barter  and  money  is  passed  when,  in  trading,  men 
accept  this  or  that  as  pay,  with  the  idea  of  recourse :  i.e.,  intending  not  to 
use  what  they  get,  but  to  fass  it  off  for  the  thing  wanted.  This  transition, 
when  general,  is  a  decisive  step  in  the  onward  march  of  civilization. 

§  73     Primitive  Money 

yeiwns,  ch.  iv.     Chapin's  li^ay/and,  289.     Ad.  Smith,  bk.  i,  ch.  iv.     Roscher,  §  118. 
Lubbock,  'Early  H.  of  Mo.,'  Contemp.  Rev.,  1879. 

In  the  evolution  of  society  upward  through  succeed- 
ing stages,  very  various  commodities  have  served  as 
media  of  exchange.  Of  these  may  be  mentioned  espe- 
cially :  (i)  peltry  in  the  hunting  state,^  (ii)  cattle  ^  and 
slaves  in  the  pastoral,  (iii)  corn^  and  other  cereals,  with 
beaus,  olive  oil,  tobacco,  etc.,  in  the  agricultural,  (iv) 
mats,  pieces  of  cloth,  nails  *  and  various  other  manu- 
factured articles,  in  a  more  civilized  state,  (v)  cowrie 
shells,"^  wainpuni'^  and  other  articles  of  beauty,  in  every 
state  previous  to  the  invention  of  regular  money.  Gold 
and  silver  probably  first  obtained  currency  through  use 
for  personal  adornment." 

^  According  to  the  Bismarck  Tribune,  1885,  gopher  tails  were  then 
currency  in  parts  of  Dakota. 

-  Cattle  were  the  main  money  of  Homeric  times  [§  72,  n.  i].  Also 
among  the  Hindoos  in  the  age  to  which  the  earliest  Rig-Vedic  hymns 
relate,  3000-4000  B.C.  '  India,'  in  Encyc.  Brit.  Our  word  '  fee'  originally 
meant  'cattle'  [so  the  \.z.\.\x\ pecunia,  money,  and /<ff ;//<;//«,  property,  from 
pec  us,  a  '  herd  '  of  cattle  or  sheep]. 

3  So.  Carolina,  in  1687,  made  "come,  pease,  poric,  beef,  tobacco,  aiul 


!20  THE    NATURAL    HISTORY    OF    MONEY 

tars "  general  legal  tender.  The  role  of  tobacco  as  money  in  early  Vir- 
ginia and  Maryland  is  well  known.  Mexico,  when  the  Spaniards  arrived, 
had  no  gold  money,  though  both  gold  and  silver  were  wrought,  but  for 
money  used  cacao  beans  in  little  bags  holding  8000-24000  each,  cotton 
materials,  gold  dust  in  goose-quills  with  values  according  to  size,  pieces  of 
copper  3-4  lingers  wide,  and  little  tin  plates.  Schoenberg,  I,  38,  n.  [2d 
ed.].  Morgan,  Anct.  Society,  pt.  ii,  ch.  vii,  says  the  Aztecs  had  no  money, 
but  barter  only.  In  Thibet,  cakes  of  salt  and  of  tea  were  money  and  legal 
tender  till  somewhat  recently.     La  Couperie,  Silver  Coinage  of  Thibet. 

*  Ad.  Smith  [as  above]  had  heard  that  nails  were  still  in  his  time  used 
for  small  change  in  parts  of  Scotland.  There  is  tin  money  in  China  and 
the  Malay  Archipelago.  In  Senegambia  iron  is  money,  as  in  ancient 
Sparta,  where  Lycurgus's  laws  forbade  the  possession  of  gold.  Iron  was 
a  precious  metal  among  the  old  Turanians  of  Babylon.  Maspero,  //isf. 
anc,  140  sqq. 

*  A  beautiful  shell,  about  an  inch  long,  white  and  straw-colored  without, 
blue  within,  found  nearly  all  over  the  world,  especially  in  the  shallow 
waters  of  the  Indian  Ocean.  There  are  over  100  species.  The  one  in 
question  is  the  cypraea  moneta  —  ^  cypraea''  from  the  name  of  the  mol- 
lusk  which  it  clothes,  '  moneta  '  from  its  wide  use  as  money.  On  parts  of 
the  coast  of  Africa  it  is  the  regular  tender,  and  it  still  enjoys  great  currency 
in  farther  India.  In  Bengal,  formerly,  3840  equalled  a  rupee  [50  cents]. 
'  Cowry,'  in  Encyc.  Brit. 

•"  On  wampum  as  money  in  colonial  times,  Weeden,  in  Johns  Hopkins 
Univ.  Studies,  2d  ser.,  viii-ix. 

'  But  F.  A.  Paley,  Ccntemp.  Rev.,  Aug.,  1884,  argues  learnedly  that 
gold  was  first  esteemed  in  connection  with  sun-worship.  In  Genesis, 
ch.  xxiv,  gold  is  only  a  commodity,  bought  with  silver.  More,  Utopia, 
ch.  vi,  represents  the  Utopians  as  eating  from  earthen  and  glass,  while 
using  gold  and  silver  for  gyves  to  bind  criminals,  earrings  to  brand  infa- 
mous persons,  and  even  for  purposes  namelessly  vile. 

§  74     Money  Proper 

Mill,  bk.  iii,  chap.  vii.  Sidgwick,  bk.  ii,  ch.  iv.  Dastable,  '  Money,"  in  Encyc.  Brit. 
Nicholson,  Mo.  and  Mon.  Prob.,  ch.  iii.  Roscher,  vol.  i,  §  119;  vol.  iii  [Handel  71. 
Gewerbe/leiss]  §  40.    Schoenberg,  vol.  i,  VII.     Walker,  Money,  ch.  ii.    Mangoldt, 

§§  50  sqq- 

All  exchange  by  means  of  primitive  currency  mii.st 
manifestly  have  labored  under  many  of  the  dLsadvan- 


THE    NATURAL    IIISTORV    (JF    M(JNEY  121 

tages  of  barter  itself.  Exchange  could  not  become 
facile  or  extensive  until  commodities  were  discovered 
so  uniforiiily  desirable  as  to  possess,  by  universal  con- 
sent, a  universal  pureliasin^  power,  in  other  words, 
exchange  readily  everywlicre  for  all  commodities  and 
services  whatever,  thus  becoming  money  proper.^  Gold 
and  silver  proved  such  commodities.  Long  current  at 
first  by  weight  and  test,  they  acquired  far  fuller  use- 
fulness with  the  invention  and  extension  of  authoritative 
coining-.'- 

1  'A  universally  successful  tender'  is  perhaps  the  best  definition  of 
[full]  money.  Cf.  §  82.  Other  things  are  then  money  only  in  so  far  as 
they  meet  this  criterion.  F.  A.  Walker,  '  Money,'  followed  by  Bastable, 
calls  money  "  that  which  passes  freely  from  hand  to  hand  throughout  the 
community  in  final  discharge  of  debts  and  full  payment  for  commodities, 
being  accepted  equally  without  reference  to  the  character  or  credit  of  the 
person  who  offers  it  and  without  the  intention  of  the  person  who  receives 
it  to  consume  it  or  enjoy  it  or  apply  it  to  any  other  use  than  in  turn  to 
tender  it  to  others  in  discharge  of  debts  or  payment  for  commodities." 
This,  of  couise,  includes  bank  notes.  Dehning  so,  you  are  forced  to  sub- 
divide money  into  kinds.  Sidgwick,  and  J.  H.  Walker  [Mo.,  Trade  and 
Banking]  include  checks  and  all  bankers'  liabilities  in  'money.'  There 
arc  advantages  to  this,  also  disadvantages,  as  to  any  terminology.  Choice 
of  definition  is  less  important  than  consistency  in  holding  to  the  one  chosen. 

'^  See  next  §,  iii,  (ii,)  and  n.  10. 

§  75     The  Money  Metals 

Roscher,  vol.  iii,  ch.  vi.  Jevons,  chaps,  v,  vi.  Schoenberg,  vol.  i,  VII,  iii,  iv. 
Eissler,  The  Metallurgy  of  Gold;  do.  of  silver.  Walker,  Money,  chaps,  v-viii. 
Bastable,  '  Money,'  in  Encyc.  Brit. 

Gold  and  silver  possess  various  attributes  besides 
universal  currency  which  fit  them  to  serve  as  money 
better  than  any  other  known  material.  They  are  : 
i  Convenient ;!  (a)  divisible,  (b)  durable,  (c)  impressi- 
ble, (d)  portable,     ii  Steadiest  of  all  things  in  value. 


123  THE    NATURAL    HISTORY    OF    MONEY 

owing  to,  (i)  size  and  regularity  of  demand,^  (ii)  large- 
ness ^  of  quantity  in  use,  (iii)  uniformity  in  cost  of  pro- 
duction,* (iv)  facility  of  transportation,^  (v)  tendency  of 
every  rise  or  fall  in  value  to  be  checked  by  change  in, 
(a)  production^  of  the  metals  themselves,  (b)  use  of 
credit,"  (c)  exchange  power  of  a  given  amount^  of  the 
money,  iii  Relatively  independent,  in  value,  of  gov- 
ernmental act.  (i)  Legal  enactments  do  not  make 
them  into  money.  (ii)  Government,  though  it  may 
modify,  cannot  fix  their  value,^  coinage  only  attesting 
the  quantity  and  quality  of  the  metal  in  each  piece.^^^ 

1  Diamonds,  like  gold  and  silver,  present  great  weight  in  small  compass, 
but  lack  qualities  (a)  and  (c).  The  Regent  or  Pitt  diamond  is  thought 
worth  about  2.2  tons  of  gold  coin,  as  much  as  40  men  could  carry.  Gold 
is  in  fact  far  from  being  the  most  valuable  substance.  It  is  worth  per  troy 
ounce  S20.67183.  Rare  metals  are  quoted  by  the  gramme.  Reducing 
this  to  troy  ounces  we  have  per  troy  ounce,  omitting  fractions,  Barium 
$124,  Calcium  331 1,  Osmium  $93,  Rubidium  $622,  Zirconium  §496. 
[Scieat.  American,  June,  1886.]  There  are  said  to  be  19  metals  more 
precious  by  weight  than  gold,  and  cocaine  is  more  so  than  any  metal.  A 
pound  of  steel  in  the  form  of  hair  springs  for  watches  is  worth  [1889] 
Si40,cxx).  Platinum,  coined  by  Russia  from  1828  to  1845,  proved  poor 
money,  being  lustreless,  difficult  to  melt,  and  very  fluctuating  in  value, 
owing  to  meagreness  of  supply.  Quicksilver  liquefies  too  easily.  Copper, 
900  times  less  valuable  per  grain  than  gold,  is,  for  rich  societies,  not  pre- 
cious enough  for  full  money,  but  lasts  nobly.  J.  B.  Say  believed  certain 
copper  coins  to  be  still  current  in  France  early  in  this  century  which  had 
never  been  out  of  circulation  since  the  days  of  the  Roman  empire  [Blanqui, 
vol.  i,  321].  As  to  weight,  gold  [spec.  grav.  19.253]  is  the  heaviest  metal 
but  two:  platinum  [21.5],  and  iridium  [22.23].  Silver  has  a  spec.  grav. 
of  10.474;   copper,  one  of  8.8. 

■^  The  demand  for  money  consists  of  all  goods,  services,  etc.,  whatever, 
which  are  offered  for  money. 

'Of  gold  the  world's  existing  stock,  coin  and  wares,  is  about  11,000 
tons,  worth  .?7,700,ooo,ooo.  The  uscal  yearly  loss,  literal  and  from  attri- 
tion, etc.,  is  2  tons,  or  81,400,000.    The  mines  yield  yearly  some  585,000,000, 


THE    NATURAL    HISTORY    OF    MONEY  123 

of  which,  till  lately,  J  has  gone  into  coin,  the  rest  into  wares.  Now,  the 
consumption  for  wares  is  greater,  about  $62,500,000  annually.  The  gold 
in  the  world  in  1884,  in  form  of  coin  or  of  bullion  covering  notes,  was 
^3.70o>ooo,ooo  [Del  Mar.],  $3,400,000,000  [Burchard],  or  $3,270,000,000 
[Soetbeer].  The  silver  of  the  civilized  nations  in  1884,  money  and  hoards, 
was  estimated  at  $2,185,000,000,  and  the  increase  that  year,  not  quite 
$130,000,000.  Of  silver  the  western  nations  use  in  manufactures  some 
$22,000,000,  and  send  to  Asia  about  $72,000,000,  hoarding  or  coining  not 
over  $35,000,000. 

*  Greater  for  silver  than  for  gold,  liecause  of  its  wider  and  more  equable 
distribution  in  the  earth.     Suess,  Zukunft  des  Goldes. 

^  See  §  76.  Here  gold,  value  for  value,  has  enormous  advantage  over 
silver:  $1,000,000  in  gold  weighing  only  about  i||  tons,  in  silver  26iJ  tons. 
For  subsidiary  silver,  about  6.4  per  cent  lighter  than  the  dollars,  the  figure 
would  be  25  tons;   for  nickel  half  dimes,  100  tons. 

^  If  gold,  e.g.,  ever  becomes  abnormally  dear,  mining  it  pays  better,  the 
output  increases,  and  the  e.xira  preciousness  disappears,  or  tends  to.  Also 
vice  Vfisa.  Notice,  however,  that,  with  the  growth  of  fixed  capital  in 
mining  the  influence  described  acts  less  promptly.  Hadley,  Railroad 
Transportation,  72. 

'  In  general,  as  money  increases  in  value,  more  credit  transactions  take 
place,  so  far  dispensing  with  money,  and  hence  cheapening  the  same  again. 
If  it  decreases  in  value,  the  reverse  results  appear. 

^  That  $1  will  now  pay  for  as  much  as  $1.10  would  a  month  ago,  means 
that  so  much  more  exchanging  can  now  be  effected  with  a  given  amount 
of  money.  This  possibility  has  little  effect  in  practice,  because,  though 
the  dearer  unit  could  exchange  more,  it  would  not  do  so,  owing  to  tendency 
of  dear  money  [low  prices]  to  retard  circulation.  This  is  why  the  text 
does  not,  as  is  common,  name  '  swifter  or  slower  circulation  '  as  an  element 
in  the  automatism  of  money's  value.  Dear  money,  working  as  a  brake  on 
circulation,  tends  to  grow  dearer  still:  cheap  money  [high  prices],  accel- 
erating circulation,  grows  ever  cheaper.  But  should  extraneous  causes 
give  quick  movement  to  dear  money,  rise  in  its  value  would  be  checked ; 
or  a  slow  pace  to  cheap  money,  it  would  tend  to  be  less  cheap. 

^  A  metal  not  so  already,  might,  however,  become  more  valuable  by 
being  made  legal  currency,  and  it  is  believed  that  several  powerful  govern- 
ments could  by  coining  upon  a  common  ratio  maintain  the  relative  values 
of  gold  and  silver  free  from  essential  change  [next  §].  Certain  writers 
exaggerate,  others  underrate,  the  character  of  money  as  product  of  state 
action.     See  Ilorton's  note,  Rep.  of  Intl.  Monetary  Conf.  of  1878,  p.  741, 


124  THE    NATURAL    HISTORY    OF    MONEY 

^^  This,  i.e.,  constitutes  the  political  essence  of  coining.  The  embossing, 
milling  and  other  artistic  work  are  of  great  service  against  counterfeiting, 
and  may  also  embellish.  The  alloy  imparts  hardness.  The  '  fine  bars '  of 
silver  made  by  the  U.  S.  mints  and  assay  offices  run  998-999  fine,  usually 
999.  The  U.  S.  and  most  of  Europe,  coin  from  metal  900  fine,  and  bars 
of  this  fineness  are  in  these  lands  called  '  standard '  bars.  Great  Britain 
coins  gold  9165  fine,  silver  from  her  'standard'  silver  bars,  925  fine.  The 
silver  quotations  in  London  refer  to  such  bars.  There  is  thus  no  univer- 
sally recognized  '  standard  '  for  bars  of  either  metal,  but  iVo^a  ^^^^  probably 
come  in  time  to  be  recognized  as  such.  Russian  coins  are  \\  fine,  like 
English  gold. 

§  76     Mode  of  their  Distribution 

Mill,  bk.  iii,  chaps,  viii,  ix,  xix,  xxi.     Ad.  Smith,  bk.  iv,  ch.  i. 

Gold  and  silver  find  their  way  over  the  earth  partly 
as  commodities,  partly  as  coin.  If  gold  is  plentiful  in 
any  country,  whether  dug  there  or  brought  there,  it  is 
cheap,  prices  are  liigh,  and  foreign  commodities  throng 
in,  to  be  paid  for  by  sending  gold  to  the  countries 
whence  they  come.  On  the  other  hand,  every  country 
where  gold  is  scarce  will  have  low  prices,  and  gold  will 
be  tempted  in  to  purchase  commodities  for  exportation.^ 

^  A  fine  example  of  the  play  of  natural  law  in  the  social  world  [§  15, 
n.  5].  During  the  potato  famine  of  1847  Great  Britain  had  to  import 
enormous  quantities  of  grain  from  America,  sending  hither  therefor  the 
sum  of  ^16,000,000  in  bullion.  Prices  at  once  rose  here  and  fell  in 
England.  Eng.  merchants  bought  less  in  America,  while  Americans  bought 
largely  in  England,  so  that,  the  next  year,  all  the  gold  returned  to  Great 
Britain.  Toynbee,  Industrial  Revolution,  82  sq.  The  processes  described 
are  of  course  more  or  less  obstructed  by  tariffs,  and  by  whatever  hinders 
trade  [§§  54,  55]. 


THE    NATURAL    lUSToKV    OF    MONEY  I25 

§    J'J       JilMETALLISM 

Nicholson,  Mo.  and  Mon.  Problems,  pt.  ii.  Walker,  P.  E.,  406  sqq.;  Money,  chaps, 
xii.  xiii;  Mo.  Trade,  and  Ind.,  chaps,  vi,  vii.  Laitghlht,  ed.  of  Mill,  633  [good 
bibliog.J.  Jevons,<:.\\.  \\\.  Schaejflf,  Fur  internal.  Doppehv'dhrung.  Arendl, 
Vertragsmassige  Doppelwahriing.  Wagner,  in  Zeitsch.  /.  gesam.  Staatsw., 
1880,  IV,  i83i,  I.  Sitess,  y.iikun/t  d.  Goldes.  Lexis,  in  Conrad's  Jahrb.,  1877,  11; 
1880,1;  1882,1.  Soeibeer,  ibid.,  iS&o,  i;  Vierteljahrsch.f.  Volkswirtsch.,y.\.\\, 
ii,  2.  Laveleye,  La  tnon.  bimetalliqiie.  F'litz,  Graph.  Darst.  d.  Metallpreise. 
Nasse,  in  Schoenberg,  vol.  i,  VII,  xi,  3.     U.  S.  Consular  Rep.,  Dec,  1887. 

Bimetallic  money  is  money  formed  by  opening  gold 
and  silver  both  to  free  coiuag-e,^  and  making  each  an 
unlimited  legral  tender  at  a  certain  permanent  legal 
value-ratio  -  to  the  other.  Its  superiority,  supposing 
the  scheme  feasible,  arises  from  tw^o  facts  :  i  It  w^ill  add 
steadiness  to  the  value  of  the  dollar  or  other  unit  of 
value,  since  this,  as  we  have  seen,^  is  complete  in  pro- 
portion to  the  size  of  the  whole  volume  of  unwrought  * 
money-metal.  Gold  and  silver  together  of  course  form 
a  far  vaster  reservoir  than  either  by  itself.  But  a 
bimetallic  money-unit  will  be  less  changeful  than  a 
monometallic,  even  if  the  whole  money-metal  volume 
is  the  same  in  the  two  cases,  as  fluctuations^  in  both 
metals  at  one  and  the  same  time  are  less  probable 
than  in  one  alone,  ii  Such  a  system  would  furnish  a 
common  measure  of  value  between  its  members  and 
gold  monometallist  or  silver  monometallist  states,*^  and 
between  these  latter  also.  The  serious  question  is 
whether  the  two  metals  can  be  made  a  single  stan- 
dard of  value.  We  pronounce  this  possible."  Sufficient 
nations  may  unite  upon  a  given  value-ratio  to  render 
both  metals,  in  those  nations,  current  together  at  that 
ratio,  all  natural  tendencies  to  alter  the  ratio,  as  by 
extensive  losses  or  new  discoveries  of  either  metal,  being 
instantly  checked  by  the  new  demand  thus  originated 


126  THE    NATURAL    HISTORY    OF    MONEY 

tor  the  cheaper  metal  wherewith  to  make  payments.^ 
This  bimetaUic  scheme,  never  yet  tried,  entirely  differs 
in  principle  from  a  imigovcruiueutal  one.^ 

1  Coinage  is  technically  known  as  'free,'  even  when  a  'seigniorage'  is 
charged  for  coining  [§  85,  n.  4].  Full  legal  tender  quality  in  both  metals 
as  in  U.  S.  since  1878,  does  not  alone  constitute  bimetallism. 

-  Either  15  parts  of  silver  to  i  of  gold  [U.  S.,  1792-1834],  or  15.I :  i 
[the  Latin  Union,  viz.,  France,  Belgium,  Switzerland,  and  Italy],  or  16:  i 
[U.  S.,  1 834-1 874,  and  1878].  A  ratio  differing  from  any  of  these  might 
of  course  be  chosen.  A  grain  of  gold  bullion  is  now  [1889]  worth  nearly 
20  of  silver. 

8  See  §  75,  ii. 

*  Taking,  as  yet,  no  account  of  paper  money.  If  considerable  labor 
has  been  bestowed  upon  gold  or  silver,  as  in  case  of  most  wares,  the  por- 
tions affected  no  longer  aid  stability.    They  are  only  so  much  commodity. 

'  Thiough  extraordinary  discoveries  or  losses,  exportation,  or  new  uses 
or  disuses  in  the  arts. 

^  About  },  of  the  world's  population  uses  gold  only  as  full  money  [gold 
monometallists],  between  1  and  J  are  bimetallists,  and  nearly  5  silver 
nionometalHsts.  On  advantage  ii,  Bonamy  Price,  Contemp.  Rev.,  Mch., 
1884,  Walker,  P.  E.,  409,  411. 

''  On  the  basis  of  such  considerations  as,  with  the  other  writers  named 
above,  Walker  [P.  E.,  406  sqq.]  and  Nicholson  [228  sqq.]  adduce.  About 
^  the  precious  metal  is  coin  or  bullion  accessory  to  coin.  This  part,  so  far 
as  present  in  their  borders,  the  league  of  nations  would  monopolize,  which 
would  go  far  toy7jr  the  relative  demand  of  the  2  metals,  a  political  cause 
determining  the  action  of  nature.  'J'o  drive  either  sort  of  money  to  a 
premium,  not  only  must  enough  of  the  other  be  supplied  to  displace  it  in 
the  circulation,  but  .i  market  must  be  found  for  what  is  displaced.  Were 
the  league  small,  Ijoth  infelicities  might  occur  :  should  the  U.  S.,  Gr. 
Britain  and  Germany  join  the  Latin  Union  [n.  2]  and  all  coin  both  metals 
freely,  neither  would  be  possible.  Significant,  too,  are  (i)  the  monetary 
hist,  of  France,  which  from  the  beginning  of  the  century  till  1874,  unaided 
by  other  nations,  and  amid  the  greatest  changes  in  the  relative  values  of 
the  2  metals,  welcomed  Ijoth  to  its  mint;  and  (ii)  the  fact  that  variations 
in  the  relative  values  of  g.  and  s.  have  never  imitated  variations  in  relative 
supply  and  output,  save  very  slowly  anrl  slightly.  The  fairest  plea  for  gold 
monometallism  is  Nasse's,  in  Schocnljcrg.  His  main  arguments  are  the 
political  difficulties  of  a  bimetallic  league,  and  people's  dislike  of  silver 


THK    NATUKAF.    IIISTOKV    OF    MONEV  12/ 

because  of  its  weight.  The  political  difficulty  is  great,  perhaps  decisive : 
the  other  would  mostly  disappear  with  use  of  certificates. 

*  Reference  here  is  to  ordinary  and  local  variations,  radical  and  wide 
ones  being  prevented  l)y  the  agencies  specified  in  n.  7.  Units  of  one  coin, 
being  cheaper  yet  e(|ual]y  good  for  the  purpose,  would  be  sought  [by 
carrying  bullion  to  the  mint]  for  use  in  payments  [Walker,  Mo.,  253]. 

"  Hence  to  show,  as  I.aughlin,  II.  of  Bimetallism  in  U.  S.,  does,  the  ill 
working  of  bimetallism  in  one  land,  in  no  wise  disproves  the  scientific 
bimetallist  argument. 


CHAPTER    II 

banks  and  paper  money 

§  78     Banks  of  Deposit 

Juglar,  Bangues,  in  Say's  Diet,  des  Finances.  Courtney,  '  Banking,'  in  Encyc.  BHt 
Horn,  '  Hanks,'  in  Lalor's  Cyc.  li^agtier,  in  Schoenberg,  vol.  i,  VIII,  II.  yevuni 
ch.  xvi.  Ad.  Smith,  bk.  ii,  ch.  ii.  Bowen,  American  Pol.  Econ.,  316.  Walker, 
Money,  409  sqq. 

The  use  of  metallic  currency  is  attended  with  certain 
disadvantages,  as  (i)  labor  and  expense  of  counting, 
(ii)  labor,  expense  and  risk  of  transportation,  (iii)  lia- 
bility to  robbery,  (iv)  difficulty  of  identillcation,  (v) 
dearness.  All  these  are  lessened  by  substituting  paper 
for  coin.^  As  trade  multiplied,  therefore,  it  naturally 
occurred  to  merchants  to  deposit  their  specie  with 
some  responsible  party  and  traffic  with  his  certificates 
of  deposit,  the  specie  for  each  certificate  being  obtain- 
able by  the  holder  on  call,^  and,  at  the  outset,  a  slight 
premium  allowed  for  the  care  of  the  money.  Hence 
arose  banks  of  deposit,  serving  to  facilitate  exchanges 
not  only  between  individuals  but  also  between  cities 
and  nations. 

'  Touching  most  of  the  items  this  is  obvious.  As  to  (iii),  compare  in 
ease  of  concealment,  $1,000,000  in  gold  and  the  same  in  thousand-dollar 
notes.  As  to  (iv),  notes  can  be  numbered  and  marked,  which  would 
damage  coins.  Ad.  Smith  compares  gold  and  silver  mo.  to  a  hjjjhway  on 
the  ground,  paper  to  a  wagon  way  through  the  air.  In  the  matter  of 
dearness,  the  use  of  subsidiary  paper  effects  no  saving.  The  necessary 
expense  of  keeping  up  our  subsidiary  paper  circulation  during  and  after 
the  war  was  5  per  cent  of  its  face  value  yearly,  Ixing  equal  to  interest  on 
bonds  enough  to  purchase  the  silver  which  supplanted  it.      I'he  coining  of 


HANKS    AND    PAPER    MONEY  1 29 

this  cost,  indeed,  i.]-2  per  cent,  but  the  part  of  such  expense  belonging  to 
a  single  year  would  be  slight,  as  few  if  any  of  the  coins  would  show  wear 
in  less  than  50  years.  And  in  paper  money  at  large  the  saving  occurs  in 
interest  rather  than  in  wear.  It  costs  Gt.  Britain  3io,cxx)  to  coin  a  mil- 
lion sovereigns.  In  15  years  they  need  recoining,  and  have  lost  $25,000 
in  value.  Total  expense  for  manufacturing  and  wear  in  15  years,  $35,000. 
The  paper  and  printing  for  a  million  i  pd.  notes  would  cost  $40,000,  and 
they  would  have  to  be  replaced  three  times  at  least,  probably  4-6  times,  in 
the  15  years.  The  cost  for  larger  notes  would  of  course  be  much  less,  and 
for  the  largest,  under  that  of  gold.  On  present  condition  of  the  Brit, 
coinage,  Quarterly  Rev.,  April,  1883,  and  Quar.  Jour.  Econ.,  vol.  i,  225. 
The  British  gold  coin  taken  together  loses  4.16  per  cent  in  loo  years,  or 
a  trifle  over  i  per  cent  in  25  years.  Sovereigns  naturally  wear  better  than 
half  sovereigns. 

-  The  identical  coins  deposited,  that  is,  were  at  first  to  be  given  back, 
the  loan  being  a  cotnmodatum  [Roman  law]  as  distinguished  from  a 
mtituum,  in  which  the  lender  can  demand  again  only  equivalence,  not 
identity.     It  was  a  '  surrogate  '  [dollar-for-dollar  reserve]  note  system. 


§  79     Developed  Banking 

Quar.  Jour.  Econ.,  vol.  ii,  482  sqq.,  251  sqq.  MacUod,  Theo.  and  Prac.  of  Banking,  vol. 
i,  ch.  ix.  '  Banks,'  and  '  Banks  of  Issue,'  in  Lalor.  yevons,  chaps,  xvi  sqq.  Juglar, 
as  at  §  78.      Yves  Guyot,  Set.  Economique,  bk.  v,  ch.  iv. 

Such  an  institution,  once  established,  could  not  but 
have  the  effect  of  bringing-  together  borrowers  and 
lenders.  All  persons  having  surplus  money  would 
deposit,  and  no  objection  would  be  raised  against  the 
banker's  lending,  so  long  as  lie  promptly  honoi'ed  his 
paper.  Hence  arose  banks  of  discount  and  loan,^  serv- 
ing to  render  capital  more  efficient.  But  it  proved  a 
very  rare  occurrence  for  more  than  one-third  of  the 
average  amount  on  deposit  ever  to  be  called  out  of 
bank,  two-thirds  the  average  being  always  on  hand. 
Bankers,  therefore,  ran  no  appreciable  risk  in  issuing 
promises  to  pay  far  beyond  the  aggregate  of  their 
deposits,  and,  as  they  could  discount  with  these  surplus 


130  BANKS    AND    PAPER    MONEY 

promises  no  less  readily  than  with  money,  the  issue  of 
them  became  a  great  source  of  income.^  Hence  arose 
banks  of  circulation,  furnishing  the  public  with  a 
cheaper  and  more  convenient  circulating  medium. 

*  Discount,  subtracting  the  interest  beforehand,  is  now  the  sole  form  of 
regular  bank  loaning,  except  in  cases  of  over-drafts. 

-  To  explain :  instead  of  using  'i  the  average  deposit  wherewith  to 
discount  notes,  holding  J  as  reserve,  the  entire  average  deposit  might  be 
made  a  reserve,  and  double  its  amount  in  notes  used  in  discounting,  thus 
multiplying  the  bank's  gainful  resources  by  3.  No  fixed  rule  is  observed 
touching  the  proportion  of  reserve,  and  it  is  rarely  so  much  as  ^.  Before 
the  rise  of  the  German  empire  Leipzig  banks  used  to  keep  §,  those  of 
Bavaria  only  J  [Walker,  P.  E.,  176].  The  banks  of  issue  in  the  German 
empire  have  at  present  almost  exactly  $3  in  reserve  to  every  4  in  circula- 
tion, i.e.,  only  \  the  circulation  is  uncovered. 

§  80     Government  Paper 

'  Banking,'  in  Lalor.     Perry,  ch.  xi.     Walker,  Money,  chaps,  xvi,  xxi.     Knox,  United 

Slates  Notes. 

Promises  to  pay  issued  directly  by  a  sovereign  power 

differ  essentially  from  bank  notes,  (i)  not  representing  ^ 
values  in  the  same  way,  (ii)  basing  no  legal  claims,^ 
and  (iii)  lacking  elasticity  ^  at  best  in  the  direction  of 
expansion,  and,  unless  convertible,  also  in  that  of  con- 
traction. Midway  between  the  two  kinds  of  paper  is 
that  of  the  United  States  national  banks.  On  failure 
of  one  of  these,  the  nation  undertakes  to  insure  the 
payment  of  its  notes,  yet  always  from  the  bank's  own 
assets  placed  beforehand  in  the  national  treasury  for 
that  purpose.* 

'  Bank  notes,  though  not  covered  dollar  for  dollar,  are  still  thought  of 
as  '  representing '  the  reserve.  The  nation's  promises  [greenbacks]  l^ear 
no  exactly  similar  relation  to  any  monies  in  the  treasury  or  other  property. 
See  next  n.,  also  §  86,  n.  6. 


BANKS    AND    PAPER    MONEY  Ijl 

2  Greenbacks  are  not  a  legal  lien  on  any  part  of  the  nation's  wealth, 
whether  in  the  treasury  or  out,  not  even  when  a  reserve  is  by  law  kept  for 
their  liquidation  on  presentation  [§  86,  n.  6]. 

■'  Contraction  anil  exjiansion  occur  more  or  less  arbitrarily,  by  legislative 
fiat,  not  likely  to  accord  at  all  exactly  with  shifting  monetary  needs.  Tiiis 
might,  it  is  true,  be  remedied  in  part.   We  return  to  the  subject  in  Part  VI. 

*  The  system  is  described  somewhat  fully  in  Part  VI. 


§  8i     Hlstorical 

Juglar,  and  other  authh.,  as  at  §  77.  Gamier,  Traiti,  727  sqq.  Macleod,  Theo.  and 
Prac.  of  Banking,  vol.  i,  ch.  ix.  Quar.  Jour.  Econ.,  vol.  ii,  251  sqq.  Jevons,  ch.  xvi. 
Aii.  Smith,  bk.  iv,  ch.  iii.  Lenormant,  La  RIonnaie  dans  V Antiquite.  Sitnonin, 
'  Florentine  ]?ankers,'  Rev.  d.  d.  Mondes,  Feb.,  1873. 

Pieces  of  leather,  each  probably  intended  to  represent 
a  whole  skin,  were  current  money  in  ancient  Russia. 
The  Chinese,^  Tartars  and  Persians,  had  leather  and 
paper  money  as  early  as  the  fourteenth  century.  Bills 
of  exchang-e^  were  known  to  Assyrians,  Phoenicians, 
Carthaginians,  Greeks  and  Romans.  They  seem  to 
have  been  first  used  in  modern  times  to  pay  papal 
revenues  in  the  crusades,  many  being  now  known  dated 
in  1200^  and  on  till  1250.  The  first  bank  of  deposit 
was  erected  in  Venice,"^  117 1.  The  Banks  of  Genoa  ^ 
and  Barcelona  rose  in  1407.  The  Bank  of  Amsterdam 
dates  from  1609,  '^'^^  ^t\\\  exists,  though  radically  reor- 
pranized  in  18 14.  It,  like  the  Bank  of  Venice,  was 
controlled  by  the  state,  and  had  origin  in  trouble  from 
depreciation  of  coins.^  The  Bank  of  Hamburg  was 
founded  in  16 19,  on  the  same  principles  with  that  of 
Amsterdam,  only  not  controlled  by  the  state."  As  yet 
there  were  no  banks  in  England,  but,  during  the  civil 
wars  of  the  seventeenth  century,  jyoldsmitlis  received 
deposits  of  the  precious  metals,  either  holding  them 
subject  to  check,^  or  giving  transferriblc  receipts.     The 


13^  BANKS    AND    PAPER    MONEY 

Bank  of  England,^  established  in  1694,  was  the  first  to 
combine  the  three  functions  of  deposit,  discount  and 
circulation.  It  is  at  present  the  most  powerful  bank 
on  the  globe.  Next  stands  the  Bank  of  France,  founded 
in  1800. 

^  Ruge,  Gesch.  d.  Zeitalters  d.  Entdeckttngen,  beautifully  reproduces 
the  oldest  piece  of  paper  money  in  the  world.     The  original  is  Chinese. 

-  Lenormant,  as  above,  117,  translates  an  Assyrian  bill  of  exchange 
belonging  to  the  6th  century  B.C.  On  Gr.  and  Roman  bankers,  Courtney, 
as  at  §  7S,  also  Macleod,  Elements,  vol.  i,  279  sqq.;  Banking,  vol.  i,  ch.  iv, 
sec.  I ;  Blanqui,  Hist,  of  P.  E.,  ch.  xv.  [On  the  technique  of  the  foreign 
exchanges,  see  §  95.]  At  Josephus,  Antiqq.,  XII,  iv,  7,  end,  one  Joseph 
farms  Egypt's  revenues  in  Palestine.  He  keeps  money  with  Arion,  in 
Alexandria,  and  when  the  taxes  are  due,  writes  an  order  on  Arion  for  their 
payment.  This  amounts  to  a  bill  of  exchange,  an  international  check  or 
draft. 

•*  Blancard,  Letire  de  change  h  Marseille  an  /j"  Sihcle.  Saladin,  famous 
in  the  3d  crusade,  ii89-'92,  used  bills  of  exchange.  Is  it  not  possible  that 
this  institution  [like  so  many  others]  came  from  the  Arabs,  not  from  the 
Jews,  as  commonly  supposed? 

*  Lalor,  vol.  i,  227  sq.,  N.  A.  Rev.,  Sept.,  1885,  205  sq.,  Gamier,  727. 
This  bank  perished  with  the  Venetian  republic,  1797. 

*  This,  the  Bank  of  St.  George,  was  perhaps  the  oldest  bank  of  issue. 

^  Perr)',  276,  well  tells  the  story.  See,  more  fully.  Ad.  Smith,  in  ch.  iii, 
of  bk.  iv.  The  latter  thinks  all  the  continental  banks  named,  and  that  of 
Nuremberg  also,  to  have  sprung  from  this  motive.  Amsterdam's  current 
money  having  through  clipping  lost  9  per  cent  of  its  face  value,  so  that 
bills  of  exchange  on  the  city,  destined  to  be  paid  in  that  money,  were  per- 
sistently so  much  below  par,  a  bank  was  established  under  the  city's 
guaranty,  to  receive  coin  upon  deposit  according  to  weight,  and  give 
credit  therefor.  This  credit  was  known  as  'bank  money.'  All  bills  of 
exchange  on  Amsterdam,  above  a  certain  sum,  were  ordered  to  be  paid  in 
it,  whereupon  [par]  Amsterdam  exchange  speedily  rose  to  par,  and  even 
above. 

^  It  still  remains,  and  under  its  original  organization.  Soetbeer,  in 
Vierteljahrsch.  fiir  Volkswirtsch.,  Jahi-g.  V,  vol.  ii. 

'  See  Macleod,  as  above.  Ibid.,  vol.  i,  281  sqq.  [4th  ed.]  are  several  of 
these  primitive  checks,  varying  somewhat  in  form.     One  reads : 


BANKS    AND    PAPER    MONKY  I 33 

1 6th  Nov.,  1689 

Mr.  Jackson,  —  Pray  pay  to  the  bearer  hereof,  Mr.  Daniel  Croker,  five 

pounds,  and  place  it  to  the  accompt  of 

Your  loving  friend, 

John  Wynyarde 
To  Mr.  Roger  Jackson, 
At  Sir  Francis  Child's,  Goldsmith, 
just  within  Temple  Barr 

These  drafts  were  sometimes  payable  '  to  bearer  '  simply,  sometimes  '  to 
payee  or  bearer,'  sometimes  '  to  payee  or  order.'  At  first  they  were  written 
out  fully  with  the  pen,  an<l  might  be  sealed.  The  receipts,  or  promissory 
notes,  were  always  issued  if  the  depositor  preferred,  and  these,  too,  passed 
from  hand  to  hand  as  well  as  the  drafts. 

*  Noel,  Les  baiiqites  (V Amission  en  Europe,  2  vols,  [noble  history,  from 
the  sources,  of  all  the  greatest  European  banks].  On  origin  of  Bank  of 
Eng.,  Bancroft's  U.  S.  [author's  last  rev.],  vol.  ii,  184;  Macleod,  Banking, 
vol.  i,  ch.  ix. 


CHAPTER  III 

the  theory  of  money 

§  82     The  First  Function  of  Money 

Knits,  Geld,  v.  Walker,  Money,  ch.  i;  Mo.,  Trade  and  Ind.,  ch.  i.  Perry,  ch.  ix. 
XkhoUoit,  Mo.  and  Mon.  Problems,  ch.  ii.  Nasse,  in  Schoenbcrg,  vol.  i,  VII,  I. 
Ad.  Smith,  bk.  ii,  ch.  ii.  Mill,  bk.  iii,  ch.  vii.  Hildebrand,  Theorie  des  Geldes. 
Sunnier,  '  Mo.  and  its  Laws,'  Internal.  Rev.,  vol.  x.  Bonamy  Price,  '  How  Mo. 
does  i&  Work,'  Contemp.  Rev.,  Feb.,  1882.     Bastable, '  Money,'  in  Encyc.  Brit. 

The  fir.sti  and  on  the  whole  the  chief  business  of 
money  proper,^  or  hard  money,  is  to  aid  in  effecting 
exchanges,  to  furnish  a  medium  of  exchange.  With 
reference  to  it  as  fulfilling  this  requirement,  the  follow- 
ing propositions  are  all-important :  i  It  is  still  essentially 
a  commodity,^  only  having  a  universal  or  generalized 
purchasing  power.  Buyers  of  other  things  may  be  said 
to  sell  money,  sellers  to  buy.  ii  The  commodity's 
service  as  money  is,  however,  entirely  different  in  kind 
from  that  which  it  would  render  as  an  article  of  con- 
sumption.'* iii  Money  itself  is  but  a  small  fraction  of 
the  value  which  it  directly  and  indirectly  helps  to  ex- 
change.^ iv  It  so  powerfully  stimulates  production 
by  promoting  exchange,  that,  far  from  being  'dead,'^ 
it  may  be  set  down  as  the  most  productive  of  all  capital. 

1  Both  logically  and  [with  little  doubt]  historically.  Knies  and  Marx, 
however,  make  this  function  secondary  to  that  discussed  in  §  83.  Bring 
this  §  and  the  following  §§  into  relation  with  those  of  Chapter  I. 

'-  Cf.  §  74,  n.  I.  Whatever  scope  we  give  to  'money,'  the  analysis  of 
its  character  must  begin  with  metal  money,  there  being  many  things  predi- 
cate of  it  which  are  not  so  of  any  form  of  paper.     See  §§  86,  93. 


THE    THEORY    OF    MONEY  135 

8  Not  a  mere  token,  or  an  orJer,  as  Macleod  and  the  advocates  of  fiat 
money  vainly  teach.  How  far  adoption  by  government  conveys  to  it  its 
pecuhar  power  in  purchase  cannot  be  confidently  stated.  .Some  exaggerate, 
others  underrate  this.     Cf.  §  75,  n.  9,  and  Horton,  as  cited  at  §  83. 

♦  Knies,  Geld,  2d  ed.,  184. 

'"  See  §  77,  n.  I.  Cf.  Perry,  237,  and  Ad.  Smith,  as  above.  A  dollar 
might  effect  1000  dollar  exchanges  in  a  day.  Also,  money  aids  to  transfer 
vast  quantities  of  goods  merely  through  its  denominations,  without  the 
slightest  further  intervention.  At  the  N.  Y.  clearing-house,  $200,000,000 
are  sometimes  exchanged  in  an  hour,  and  as  much  at  that  in  London,  no 
coin  or  bank-notes  being  used  except  for  balances  [§  94,  n.  i]. 

•i  As  Newcomb  and  many  other  able  authors  have  called  it,  out  of  a 
mistaken  idea  of  productivity.     See  Walker,  Mo.,  22  sq.,  and  n.  5,  above. 

§  83     The  Second  Function 

Roscker,  bk.  iii,  ch.  iv.  Marx,  Capital,  pt.  i,  ch.  iii,  sec.  i.  Knies,  Geld,  iv  Yves 
Guyot,  Sci.  Economique,  bk.  iii,  ch.  iii.  Horton,  Position  of  Law  in  the  Doct.  of 
Money  [a  pamph.].     Perry,  246  sqq. 

This  is  that  of  a  scale  or  measure  of  value,  and  is 
entirely  separate  in  nature  from  the  first.  The  two 
may  and  often  do  belong  to  different  wares.^  Of  money 
viewed  in  this  second  character  we  are  carefully  to 
remember  that :  i  It  is  at  best  only  an  approximately 
invariable  measure.^  ii  It  is  a  measure  of  value  by 
virtue  of  being  itself  a  value.^  iii  It  is  a  more  perfect 
measure  the  more  steady  and  invariable  it  is  as  to  its 
own  value.*  iv  It  inevitably  shrinks  ^  in  value  so  soon, 
and  about  in  proportion,  as  it  is  multiplied  beyond  the 
requirements  of  exchange. 

1  In  the  U.  S.,  1889,  gold  is  the  measurer,  while  silver,  nickel,  copper 
and  paper  do  the  actual  exchanging.  If  no  gold  at  all  existed  in  the  form 
of  money  [coin]  it  might  still  be  the  measure  of  value.  Nicholson,  Mo. 
and  Mon.  Prob.,  20. 

2  Herein  differing  from  most  other  measuring  scales  of  units  [§  87  and 
n.  i].  Nicholson,  299.  Marshall,  approved  by  Nicholson,  34,  deems  a 
perfect  measure  of  value  unthinkable.     In  what  sense  this  is  so,  §  70. 


136  THE    THEORY    OF    MONEY 

'  Measure  ami  the  thing  measured  being  of  the  same  kind  ox  nature. 
Most  measures  hear  this  relation  to  the  things  measured.  Not  so  the  ther- 
mometer, which  consists  in  an  arrangement  for  measuring  heat  by  length. 

*  See  §§  75,  77,  85,  and  notes. 

*  More  strictly,  perhaps,  it  tends  to  shrink,  and  will  do  so  unless  counter- 
causes  are  in  play.  Various  influences,  too,  may  and  usually  do  interfere 
to  prevent  the  depreciation  from  following  inflation  [or  vice  versa\  with 
perfect  exactness.     See  §  85. 

§  84     Other  Offices  of  Money 

Walker,  Money,  ch.  i.   Ktiics,  Geld,  vi,  vii.    Jevons  [ch.  iii],  Nicholson,  and  Bastable, 
as  at  preceding  §§. 

Besides  the  two  sovereign  services  just  character- 
ized, it  devolves  on  money  also  :  i  To  furnish  a  system 
of  money  denominations.^  ii  Legally  to  make  pay- 
ments and  liqnidate  indebtedness.^  iii  To  be  a  stan- 
<lard  for  deferred  payments.'^  iv  To  transfer  values 
in  space  and  in  time.^  v  To  regulate,  as  a  totality,  the 
value  of  each  unit  of  its  mass.^ 

J  Not  at  all  to  be  confounded  with  either  of  the  greater  functions. 
Thus,  in  English  America  before  the  Revolution,  the  money  of  account, 
viz.,  the  colonial  pounds,  shillings,  pence,  and  farthings,  a  different  system 
from  the  English,  neither  exchanged  nor  measured  values,  but  was  a  mere 
means  of  book-keeping. 

2  This,  too,  as  Knies  well  points  out,  is  something  quite  separate  from 
the  exchange-function.  Governments  might  make  corn  or  horses  the  legal 
means-of-payment,  instead  of  money. 

8  As  in  case  of  all  time  contracts  and  transactions,  and  outstanding 
debts.  This  is  logically  and  in  point  of  time  a  secondary  function  of 
money,  but,  in  modern  business,  hardly  so  in  importance.     See  §  87. 

*  Walker,  Mo.,  12,  against  Jevons,  thinks  this  not  an  office  of  money  as 
such.  "  When  a  commodity  comes  to  serve  as  a  store  of  value,  it  ceases 
to  be  money."  This  seems  arbitrary.  Money  is  often  used  thus.  Hoarded 
silver  dollars  [1889],  for  example,  do  not  drop  to  their  bullion  value. 
Notice  that  the  use  of  money  as  a  reservoir  of  value  differs  from  that  of  iii. 
It  is  tru;:  that  when  gold  and  silver  are  used  as  the  form  in  which  to  send 
value  abroad,  they  cease  to  be  money. 


THE    THEORY    OF    MONEY  1 37 

*  We  see  from  §  83,  iv,  and  §  87,  that  the  total  made  up  of  money  and 
unwrought  money  metal  actually  does  have  this  effect,  whether  artificially 
manipulated  or  not.  It  is,  indeed,  one  of  the  most  significant  of  all  the 
facts  relating  to  money. 

§  85     The  Value  of  Money 

lyalker,  P.  E.,  pt.  iii,  chaps,  iii,  iv.  Mill,  bk.  iii,  cliaps.  viii,  ix.  Perry,  241  sqq. 
Fawcett,  Manual,  356  sqq.  Bastiat,  Pol.  Econ.,  202  sqq.  McAdam,  Alphabet  in 
Finance,  vi.  liilgram.  Iron  Law  of  Wages.  Wagner,  Geld  it.  Kredittheorie  der 
Peel'schen  Bankacte;  also  in  Zeitsch.f.  gesam.  Staats^v.,  1881,  759  sqq.  Nasse, 
in  Schoenberg,  vol.  i,  VH,  x.     Sidgivick,  bk.  ii,  ch.  v.     Mangoldt,  §§  79  sqq. 

This,  by  which,  observe,  we  do  not  here  mean  inter- 
est, but  purchasinif  power,  is  rec^ulated  as  in  case  of 
those  goods  whose  supply  is  limited,!  almost  entirely 
by  the  relation  between  demand  and  supply,  cost  of 
production  rarely  coming  into  the  account,  i  Money 
behaves  like  a  monopolized  article  without  being  such, 
viz.,  while  remaining  freely  open  to  both  additions  and 
los.ses.  ii  The  facts  named  at  §  75,  ii,^  render  money 
more  independent  than  aught  else  of  all  ordinary 
changes  in  demand  and  supply,  iii  Given  money 
enoug-li  already  to  do  all  needed  money-work,  and  the 
value  of  a  country's  money-total  is  wholly  independent 
of  its  mass.'^  iv  The  influence  which  bullion  may  exert 
in  maintaining  the  value-parity*  between  itself  and 
coin,  is  not  to  be  explained  by  supposing  bullion  to 
represent  cost  of  production  more  nearly  than  coin, 
since  of  cost  both  are  in  equal  degree  independent. 
V  If  different  portions  of  the  money  supply  have  unlike 
costs  of  production,  the  cheaper  will  not  displace  the 
dearer  unless  it  is  sufficiently  abundant  by  itself  to 
answer  the  demand.^  vi  An  alteration  in  the  value  of 
money  may  be  nothing  else  but  phase  of  a  change  in 
the  values  of  g-eneral  commodities.'^     vii  In  determin- 


138  THK    THEORY    OF    MONEY 


ino  the  value  of  money,  paper  money  and  all  the  other 
so  numerous  instrumentalities"  of  exchange,  have, 
according  to  the  amount  of  exchanging  which  they 
effect,  the  same  influence  as  money  proper. 

1  See  §  65,  end,  67. 

2  Most  potent  among  those  conditions  is  the  vastness  of  the  su^p//  of 
money,  and  the  uniquely  broad  and  uniform  demand  for  it,  consisting  in 
all  salable  commodities  or  services  except  money  itself. 

'After  the  point  named  is  reached  [Cernuschi,  'Nomisma,'  14],  an 
important  condition,  overlooked  in  Mill's  discussion,  a  greater  total  bulk 
of  money  will  purchase  no  more  than  a  smaller.  Why,  then,  should  any 
one  longer  produce  precious  metal?  Because  each  new  dollar,  though 
theoretically  less  valuable  than  dollars  were  before,  is  worth  as  much  as 
any  old  dollar  is  now.  And  from  the  point  of  view  of  society's  interest 
it  is  well  for  the  total  to  be  as  large  as  possible  [§§  75,  ii,  and  77]. 

*  I.e.,  seigniorage  being  left  out  of  view.  Since  1875  [it  had  previ- 
ously been  \  of  i  pr.  ct.]  the  U.  S.  mint  charges  no  seigniorage  for  coining, 
but  the  bringer  of  the  metal  must  pay  for  the  alloy.  In  England  also 
there  is  no  seigniorage  proper,  but  a  delay  in  furnishing  the  coins  occasions, 
through  loss  of  interest,  a  slight  practical  seigniorage,  giving  coin  usually  a 
trifling  excess  of  value  over  the  metal  it  contains  [Mill,  bk.  iii,  ch.  ix.  §  2,  n.]. 

5  Gresham's  law  [Sir  Thos.  Gresham,  founder  of  the  Royal  Exchange, 

London,  d.   1579]  is  true  only  with  this  limitation.     See  Walker,  P.  E., 

142.      It  is  usually  quoted  to  the  effect  that  poorer  money  will  ahvays 

drive  out  better.     So  Aristophanes,  '  Frogs,'  Frere's  Tr.,  893  sqq.   [cited 

by  Laughlin,  Bimetallism  in  U.  S.], 

"  for  your  old  and  standard  pieces,  valued  and  approved  and  tried, 
•  Here  among  the  Grecian  nations  and  in  all  the  world  beside, 
'  Recognized  in  every  realm  for  trusty  stamp  and  pure  assay, 
'  Are  rejected  and  abandoned  for  the  trash  of  yesterday." 

In  fact  another  modification  of  the  law  should  be  named.  The  people 
may  refuse  to  handle  the  poorer,  as  on  the  Pacific  coast  during  the  civil 
war  [H.  George,  Prog,  and  Poverty,  bk.  v,  ch.  i.].  Legal  tender  paper 
would  not  circulate  and  gold  was  retained. 

c  See  §  87. 

7  On  different  forms  of  paper  money,  see  §  80.  The  '  instrumentalities ' 
are  checks,  Vjills  of  exchange,  promissory  notes,  due  bills,  book  accounts. 
barter,  post-office  notes  and  orders,  express  orders,  telegram  and  telephone 
orders,  etc. 


the  theory  of  monev  1 39 

§  86     Paper  Money 

H^alker,  Money,  pts.  ii,  iii.  Noel,  Le  billet  de  Bauqiie  [cf.,  same  title,  in  Diat.  des 
Finances].  Knies,  Celd,  xi.  IVagner,  Geld  iind  Kredit.  Mill,  bk.  iii,  ch.  xii. 
Jevons,  Mo.  and  the  Mech.  of  Ex.,  ch.  xiii.  Nidiolson,  Mo.  and  Men.  Problems, 
ch.  vi.  Mangoldt,  §§  58,  59.  Pitpa  d'Amico,  'I'itoli  di  Credito  surrogati  della 
Monetil.     Walras,  Thi'orie  inathematiqne  de  la  richesse  sociale,  145  sqq. 

To  secure  simplicity,  this  Chapter  has  thus  far  sup- 
posed the  monetary  material  to  be  metal  only.  The 
same  laws  hold  in  the  main  for  any  system,  i  If,  along 
with  metal,  surrograte  ^  paper  bills  be  put  in  use,  the 
foregoing  principles  remain  perfectly  unmodified,  con- 
venience and  perhaps  some  economy  in  wear  and  loss 
the  sole  changes,  ii  If  instantly  and  surely  convertible 
notes  not  fully  covered  be  introduced,  the  extra  con- 
venience adds  2  somewhat  to  the  entire  number  of 
dollars  in  circulation,  this  increment  costing  nothing.-'^ 
iii  If  there  is  in  circulation  promissory  paper  not  con- 
vertible,*' it  drives  out  more  or  less  metal  in  proportion 
to  its  depreciation,  the  latter  being  great  or  slight 
according  to  a  variety  of  circumstances,  of  which  its 
amount  and  the  issuer's  credit  are  the  chief.  It  will 
be  seen  that  no  one  of  these  species  of  paper  can 
entirely  take  the  place  of  coin.  Hence,  to  be  scientific, 
we  have  to  call  paper  currency  partial  or  imperfect 
money.-''  The  failure  to  distinguish  it  from  money 
proper  leads  constantly  into  the  gravest  errors  of  view. 
Paper,  it  is  true,  (a)  is  a  medium  of  exchange,  and 
(b)  has  value,  which  (c)  is  not  in  every  case  merely 
representative.^  Yet,  i  Paper  has  no  universal  pur- 
chasing power,  since  it  usually "  passes  only  in  the 
country  that  utters  it.  ii  It  forms  no  final  measure 
of  value,  but  must  itself  be  constantly  measured,  as  to 
value,  by  coin,     iii  Its  value  is  adventitious,  not  spring- 


140  THE    THEORY    OF    MONEY 

ing  from  intrinsic  cost,  as  is  ultimately  the  case  with 
gold  or  silver,  but  entirely  from  some  operation  of  the 
principle  of  credit. 

1  Viz.,  bills  covered  dollar  for  dollar,  like  gold  and  silver  certificates. 
Gold  surrogates  are  issued  not  by  the  government  alone  but  also  by  the 
clearing-house  banks  of  N.  Y.  City.  On  the  question  of  saving  by  the  use 
of  such  paper,  §  7S,  n.  i.  On  the  effect  of  paper  money  to  increase  the 
proportion  of  fixed  capital,  Walras,  Rev.  dii  droit  internal.,  1884,  p.  587. 

"^  In  the  figure, 

a  b  c        d 


let  the  heavy  line,  xc,  represent  hard  money,  and  the  light  one,  ad,  prom- 
issory paper.  As  the  paper  is  launched,  part  of  the  hard  money,  say  be, 
will  leave  the  circulation,  some  going  out  of  the  country,  some  into  the 
melting  pot  to  be  turned  into  wares  and  trinkets.  See  J.  B.  Say,  as  cited 
by  Macleod,  Elements,  vol.  i,  99;   also  Ad.  Smith,  bk.  ii,  ch.  ii. 

"  Except,  of  course,  what  the  paper  costs.  Barring  the  difficulty  which 
it  may  occasion  in  a  crisis,  this  part  of  the  paper  has  in  all  particulars  the 
identical  effect  of  so  much  gold  [Walker,  P.  E.,  178].  Suppose  it  added 
just  when  a  larger  circulation  was  needed  to  do  the  required  money  work 
[§  85,  iii,  and  n.  3],  it  would  be  no  less  a  blessing  than  the  same  amount 
of  precious  metal  [§  i,  n.  2].  Yet  we  do  not  deny  the  possibility  of  some 
local  and  temporary  inflation  in  a  mixed  system  of  this  sort  [see  §  91, 
and  notes]. 

*  Like  U.  S.  greenbacks  between  1862  and  Jan.  i,  1879.  On  non- 
promissory  or  fiat  paper  money,  see  §  93.  Also  see  '  Cours  force '  in  Say's 
Diet,  des  Finances. 

^Ci.l  74,  n.  I. 

•^  Illustrated  by  government  paper  money  [§  80;  cf.  Farrar,  Man.  of 
the  Constitution,  339].  If  a  greenback  'represents'  property  at  all,  it 
must  be  that  which  is  to  liquidate  it  by  and  by.  This  probably  is  not  yet 
in  existence.  Of  the  bank  bills  now  at  par  not  40  per  cent  in  value  could 
be  paid  were  all  presented  to-day.     What  do  the  60  per  cent  'represent '? 

^  Yet  Bank  of  Ejigland  notes  pass  on  the  continent,  as  U.  S.  notes 
more  and  more  do  in  Liverpool,  London,  and  Paris.  They  are  not,  how- 
ever, accepted  strictly  as  money,  but  with  the  idea  of  swift  recourse,  as 
bills  of  exchange. 


the  theory  of  money         i4i 
§  87  Ideal  Mox\ey 

Knits,  Weltgeld  u.  jyellmiinzen.  Nasse,  in  Schoenberg,  vol.  i,  VII,  v,  §  10. 
Andrews,  'An  Honest  Dollar,'  in  Am.  Econ.  Ass'ii  Papers,  vol.  iv.  Marshall, 
Rem.  for  Fluctuation  of  Gen.  Prices,  Contemp.  Rev.,  vol.  51.  Grosvenor,  Prices, 
vol.  i.  Jevons,  Investigations  in  Currency  and  Finance,  II.  Ricardo,  Proposals  for 
an  Economic  antl  Secure  Currency.     Wasserab,  I'reise  und  Krisen. 

The  best  monetary  systems  yet  used  are  very  iin]>er- 
feet,  permitting  the  most  unhappy  fluctuation.s  in  the 
purchase-power  of  their  units,  discouragring  enterpri.se 

and  robbing  now  debtors,  now  creditors.^  Bimetallism 
would  rcHeve,  yet  only  temporarily.  The  time  must 
come  when  governments  will  be  authorized  (i)  to  watch, 
through  competent  commissions,  for  each  rise  or  fall  in 
the  value  of  money  (fall  or  rise  of  general  prices),  and 
(ii)  to  correct  the  same  by  expanding  or  contracting  the 
circulation.  Operation  (i)  is  feasible  by  the  critical 
summation,  at  intervals,  of  the  prices  of  definite  quan- 
tities and  qualities  of  numerous  staples,^  each  having 
prominence  in  the  result  according  to  the  amount  of  it 
consumed.  If  the  sum  as  reckoned  to-day  exceeds  the 
last  one,  prices  have  risen,  the  power  of  money  fallen. 
A  lessened  sum  will  mean  falling  prices,  dearer  money. 
Operation  (ii),  the  necessary  contraction  or  expansion, 
may  be  effected  in  either  of  several  ways,  the  best  ^  of 
which,  it  is  believed,  would  be  to  inject  into  or  withdraw 
from  a  gold  or  a  gold-and-paper  circulation,  the  proper 
amounts  of  full  legal  tender  silver  tokens."*  The  gold 
and  the  silver  should  both  be  represented  by  certifi- 
cates. Such  a  system  would  invite  if  not  necessitate 
international  ag-reement,  and  might  easily  extend  to 
all  nations  and  ages.  An  international  coinage 
would  follow  it,  and  cosmic  money  be  at  ]:ist  realized. 


142  THE    THEORY    OF    MONEY 

^  Nasse,  in  Schoenherg,  vol.  i,  VII,  v,  §  9.  Tlie  precious  inetals  vary 
enormously  in  value.  [§  83,  i,  n.  2.]  Accordinfj  to  Jevons,  gold  fell  46 
per  cent  between  17S9  and  1809,  rose  145  per  cent  between  1809  and 
1S49,  and  fell  again  at  least  20  per  cent  between  1849  and  1874.  Since 
1S74  it  has  risen  once  more,  about  30  per  cent.  When  money  falls  in 
purchasing  power  [prices  rise],  debtors  on  outstanding  contracts  are 
wronged,  receiving  in  the  stipulated  number  uf  dollars  less  value  than  was 
covenanted.  If  money  value  rises  [prices  fall],  creditors  are  wronged  in 
the  same  way.  Worse,  economically,  than  this  injustice  is  the  disorder 
imported  into  business  by  such  changes  in  the  power  of  money  [viz.,  in 
general  prices].  Rising  prices  are  wont  to  breed  speculation:  falling 
prices  asphyxiate  industry  by  making  it  profitable  to  hold  on  to,  rather 
than  employ,  money  and  titles  to  money. 

-  The  practical  difficulty  in  making  and  using  such  a  value-measure 
would  be  considerable.  What  are  staples?  How  ascertain  the  consump- 
tion of  any  one?  In  averaging,  shall  we  employ  the  arithmetical  or  the 
geometrical  mean?  No  one  of  these  questions  has  yet  received  final 
answer.  But  the  simple  addition,  from  time  to  lime,  of  a  carefully  made 
and  kept  price  list,  disregarding  variations  of  volume  between  the  com- 
modities consumed,  would  disclose  the  rise,  fall  or  stationariness  of  money 
with  a  close  approach  to  accuracy. 

^  See  Marshall,  as  above.  The  equity  of  a  composite  value-standard 
[Jevons,  Mo.  and  the  Mech.  of  Ex.,  ch.  xxv]  would  be,  by  the  plan  sug- 
gested, incorporated  ijt  the  money  system  itself,  the  only  way  it  can  ever 
be  utilized. 

*  Pieces  [dollars,  e.g."]  worth  less  than  face  value,  yet  passing  at  that 
value,  viz.,  at  the  value  of  gold,  because  limited  in  amount  [§  85,  v]. 
They  should  never  be  permitted  on  the  one  hand  to  become  of  full  face 
value,  nor  on  the  other  to  be  too  cheap.  The  superiority  of  such  subordi- 
nate money  over  paper  would  lie  in  its  labor-cost  value.  In  a  panic,  the 
metal  tokens,  nearly  as  worth ful  as  gold,  could  be  paid  out  on  presentation 
of  their  certificates,  when  holders  of  mere  uncovered  paper  would  be 
helpless.     Why  our  system  would  excel  Ricardo's,  see  §  93,  n.  i. 


CHAPTER    IV 

CREDIT 

§  88     The  Nature  of  Credit 

Mill,  bk.  iii,  chaps,  xi,  xii.     Knies,  Krtdit.     Schraut,   Organization  des  Kredits. 
Mangoldt,  §§  53  sqq.     Papa  d'A/nico,  Titoli  di  Credito,  pts.  i,  ii. 

i  Credit  in  r^conomics  is  the  power  to  command 
wealth  or  service  now  in  exchange  for  some  assurance 
of  a  return  in  future.  It  is,  in  general,  the  same  as  a 
power  to  market  titles  or  to  put  in  use  any  of  the 
instrumentalities  ^  of  credit.  It  may  be  utilized  or  not. 
ii  The  main  instrumentalities  of  credit  are,  (i)  pronii.ses, 
as  book-accounts,  deposits,  stock  certificates,  bonds, 
promissory  notes,  bank-notes,  and  (ii)  orders,  as  post- 
office  orders,  bills  of  exchange,  checks,  circular  letters 
and  mobilizing  certificates  ^  of  all  kinds,  iii  Credit  has 
value,^  and  may  also  become  capital,  being  among  the 
most  active  producers  of  value,*  (i)  utilizing  small 
sums  and  savings,''  (ii)  transferring  capital  from  less 
to  more  productive  hands,  (iii)  supplying  a  powerful 
motive  for  the  accumulation  of  capital,  (iv)  making 
possible  enterprises  too  great  for  individual  resources. 

1  '  Instrumentalities '  rather  than  '  instruments,'  to  cover  cases  of  orders 
and  promises  by  telegram  and  telephone.  '  Titles  '  or  '  instruments  '  would 
cover  only  paper  documents.  According  to  one's  purpose,  credit  may  be 
classified  as  public  or  private,  as  personal  or  real,  as  mobilier  [based  on 
personal  property]  ox  foncit-r  [on  real  estate]. 

-  Pipe  line  [petroleum]  certificates  well  illustrate  these.  Each  is  an 
order  upon  given  holders  of  oil  to  deliver  such  or  such  an  amount  to  the 


144  CREDIT 

bearer  on  demand.  Pig  iron,  whiskey,  ami  other  bulky  wares  are  in  the 
same  way  '  mobilized,'  viz.,  put  upon  the  speculative  market.  The  certifi- 
cates are  like  dock  warrants,  except  that  the  latter  are  not  intended  to  be 
negotiable  [cf.  §  55,  n.  8,  §  78,  n.  2]. 

3  This  does  not  mean  either  (i)  that  rights,  embodied  in  titles,  are  the 
essence  of  wealth  [Macleod,  followed  by  Minton,  in  Capital  and  Wages], 
or  (ii)  that  property  and  titles  to  the  same  property  are  both  to  be  reckoned 
into  the  coninuinity's  wealth  [§  2];  but  that  the  fact  or  system  of  credit 
is  an  economic  advantage.  As  such  it  is  valuable  [§  61],  however  it 
originates,  and  it  is  u<ealth  [§  i,  and  n.  3]  and  capital  [§  28]  so  far  as  it 
comes  under  the  respective  definitions  of  these  categories.  With  Knics 
[/W.  Oek.  215],  against  Wagner,  we  decline  to  rank  under  capital,  titles 
as  a  class,  but  it  is  hard  to  see  why  the  notes  referred  to  at  §  86,  n.  3,  aie 
not  at  once  wealth  and  capital.  Value  in  exchange  is  of  course  an  attri- 
bute of  all  such  papers,  unless  worthless. 

*  "  Credit  has  done  more,  a  thousand  times,  to  enrich  nations,  than  all 
the  mines  in  the  world"  [Webster,  in  speech  for  re-charter  of  U.  S.  Bank, 
1834]. 

^  The  savings  banks  of  America  contain  $12,000,000  or  $14,000,000, 
nearly  as  much  as  all  other  banking  institutions  in  the  country.  Most  of 
this,  as  well  as  much  of  the  capital  in  the  hands  of  building  and  loan 
associations  and  co-operative  banks,  is  an  aggregation  of  trifling  amounts. 


§  89     Credit  and  Crises 

Roscher,  '  Zur  Lehre  der  Absaizkrisen,'  in  vol.  ii,  of  Ansichten.  Wirth,  Gesch. 
der  Handelskrisen.  Mangold t,  §  61.  Cairnes,  Leading  Principles,  179  sqq. 
Yves  Guyot,  Sci.  £.conomique.,  bk.  v,  cli.  iii.  H.  C.  Adams,  Public  Debts, 
207  sq.    McAdam,  Al^  habet  in  Finance,  xvii. 

Credit  ha.s  its  disaclvantag'es  also,  (i)  promoting 
indebtedness  on  the  part  of  the  poor,  (ii)  sometimes 
transferring  wealth  from  more  to  less  productive  hands,^ 
(iii)  sometimes  unduly  stiimiliiting'  demand,  thus  rais- 
ing prices  and  introducing  commercial  panics.  This 
occurs  because  credit  possesses  the  same  piirchasinj? 
power  as  money  itself,  and  people  with  credit  purchase 
too  much.  Demand,  losing  all  relation  to  amount  of 
true   money  and   permanent   property,  inflates  prices, 


CREDIT  145 

which  in  turn  stimulates  exchauge,  creating  new  de- 
niaiul  for  credit,  and  indefinitely  multiplying  all  forms 
of  indebtedness,  until,  at  length,  the  discreet  decline  to 
give  credit  further,  and  the  crash  comes.^  This,  in 
general,  is  the  course  of  a  Imsiness  crisis. 

1  Apt  to  be  the  case  in  public  borrowing.  See  the  masterly  discussion 
in  Ailams,  Puljlic  Debts,  esp.  pt.  i,  chaps,  iv,  v.  All  the  great  works  on 
Finance  treat  this. 

■•^  How  far  this  evil  is  possible  in  case  the  government  and  all  banks  of 
issue  continue  to  cash  their  notes  on  demand,  see  §  91.  As  a  matter  of 
fact,  specie  payments  are  at  such  times  usually  suspended.  Besides  credit- 
crises  we  have  crises  from  mere  lack  of  money,  and  crises  from  [specific] 
over-production. 

§  90     Further  Abuses  of  Credit 

Rae,  '  Natural  Hist,  of  Credit,'  Contemp.  Rev.,  vol.  50  [1886].     U.  S.  Consular  Reports, 
No.  43,  July,  1884. 

From  70  to  90  per  cent  of  the  world's  business  is 
done  on  credit.  In  Germany,  Siam,  and  Canada  the 
proportion  is  90  per  cent,  in  Belgium  and  China,  80. 
Credit-traffic  has  its  feeblest  development  in  Holland, 
its  strongest  in  Turkey  and  Yucatan.  Credit  may  be 
a  necessity  of  life,  therefore  a  sign  of  poverty,  or  an 
instrument  of  production  and  hence  a  mark  of  wealth. 
The  difference  lies  mainly  in  the  degree  of  its  organiz- 
ation, which  is  higher  for  any  nation  in  proportion  to  its 
industrial  advancement.  With  progress  in  economic 
organization,  the  sphere  of  credit  becomes  less  exten- 
sive, its  operation  more  intensive.  Cash  payments, 
getting  the  mastery  first  in  wages,  in  retail  trade  and 
in  raw  products,  spread  gradually  over  other  fields, 
shutting  up  credit  to  its  most  helpful  and  least  danger- 
ous  functions.^      Latest    to    be   overcome   arc    unwise 


146  CREDIT 

itlans,  stimulated  by  its  immense  undoubted  advantages, 
for  the  use  of  credit  in  exchange.  Of  these,  the  three 
which  follow  deserve  the  most  consideration. 

'  The  assumption  which  so  many  have  taken  up  from  Bruno  Hildebrand, 
of  three  great  periods  in  the  world's  economic  evolution,  viz.,  barter, 
money,  and  credit,  as  if  credit  were  to  have  its  fullest  development  in  the 
most  perfect  economic  state,  is  now  seen  to  be  false.  With  nations  as 
with  individuals,  those  best  able  to  get  credit  use  it  least.  In  all  the 
wealthiest  countries  the  proportion  of  cash  payments  to  total  volame  of 
trade  is  steadily  increasing. 

§  91     Free  Banking 

'  Free  Trade  in  Banking,'  Westm.  Rev.,  Jan.,  1888.  Wagner,  Geld  und  Kredittheorie 
der  Peel'schen  Hankacte.  Walker,  P.  E.,  178  sqq.;  Money,  pt.  iii.  James, 
'  Banks  of  Issue,'  in  Lalor.     Horn,  '  Banks,'  ibid.     Wesslau,  Rational  Banking. 

Many  theorists  have  advocated  that  incorporation  for 
banking  ])urposes  be  as  free  as  for  other,  and  that 
every  bank,  like  every  private  individual,  be  permitted 
all  the  credit  it  can  secure,  with  the  privilege  of  util- 
izing the  same  in  uttering  bills  for  circulation,  to  be 
used  in  discounting,  leaving  the  receivers  and  holders 
of  the  bills  to  look  out  for  the  security.^  But  experi- 
ence, notably  that  of  the  United  States  from  1814  to 
1863,^  has  shown  that  such  a  plan  is  nearly  certain  to 
put  into  circulation  vast  amounts  of  poor  bills,  swin- 
dling the  unwary  and  the  poor,'"'  driving  hard  money 
from  circulation,  raising  and  distracting  prices,  and 
provoking  and  aggravating  commercial  crises.  It  is 
believed  that  such  unhealthy  inflation  may  occur,  at 
least  locally,  even  when  no  bills  are  legal  tender  and 
all  are  instantly  convertible.* 

1  "As  long  as  the  bank  is  bound  to  honor  its  obligations  just  as  any 
other  debtor,  and  redeems  its  notes  in  specie  upon  presentation,  the  put)lic 
will  be  able  to  determine  its  solidity,  and  consequently  measure  its  credit. 


CREDIT  147 

An  excessive  issue  of  notes  will  cause  these  notes  to  flow  back  inlcj  the 
bank  and  thus  correct  itself"  Horn,  [as  above,  p.  236]. 

'^  During  this  period  probably  5  per  cent  of  the  entire  circulation  averaged 
to  be  lost  annually.     Walker,  I'.  E.,  177. 

3  The  acceptance  of  the  notes  may  be  to  a  certain  degree  compulsory 
although  they  are  neither  legal  tender  nor  irredeemable.  They  may  form 
so  great  a  part  of  the  circulation  that  people  have  to  accept  them  for  lack 
of  other  media  of  exchange.  The  poor  are  never  in  condition  to  refuse 
what  is  offered  them  as  money,  even  when  not  too  ignorant  to  suspect  it. 
Many  receivers  are  sure  to  be  remote  from  the  place  of  redemption.  See 
James,  as  above,  p.  245.  The  government  must,  he  says,  i)  not  make  the 
notes  legal  tender,  or  anywise  artificially  favor  their  circulation,  ii)  forbid 
the  issue  of  too  small  denominations,  and  iii)  see  to  it  that  convertibility 
is  real,  and  not  made  illusory  by  any  unfair  practices.  The  bank  notes  of 
small  denominations  are  the  most  vicious  as  traps  for  the  poor. 

*  The  question  how  far  government  should  supervise  banking  is  closely 
bound  up  with  that  between  the  '  banking  principle,'  to  the  effect  that,  if 
perfectly  convertible,  paper  changes  in  no  particular  the  behavior  of  the 
money  system  to  which  it  belongs  from  what  it  would  be  if  composed  of 
metal  alone  [Walker,  P.  E.,  178.  Cf.  §  86,  ii,  above],  and  the  'currency 
principle'  [Walker,  P.  E.,  179],  according  to  which  convertibility  is  no 
sure  guaranty  against  local  and  temporary  inflation.  Wesslau,  with  Wagner 
and  most  European  economists,  favors  the  '  banking  principle,'  Walker 
the  'currency  principle'  [P.  E.,  190]. 

§  92     The  John  Law  Theory 

Btlgratn,  Iron  Law  of  Wages.  Perry,  292  sqq.  Horn,  '  Banks,'  in  Lalor.  jy/ti/e, 
Paper  Mo.  Inflation  in  Krance.  Sybel,  French  Revolution,  vol.  i,  ch.  iv.  Nicholson, 
Mo.  and  Mon.  Problems,  pt.  ii,  i.  Blanqui,  Hist,  of  P.  E.,  ch.  xxxi.  Bryant  and 
Gay,  U.  S.,  vol.  ii,  ch.  xxii.  Thiers,  Mississippi  Bubble.  Whately,  Kingdom  of 
Christ,  171  sqq.  Alexi,  "John  Law  u.  sein  System  [cf.  V'ierteljahrsch.f.  Volks7v., 
xxn,  ii,  230  sqq.].     Rondel,  Mobilisation  du  Sol  en  France. 

This  maintains  that  bills  may  be  put  forth  not  only 
in  lieu  of  gold  and  silver,  but  also  in  lieu  of  all  valiies,^ 
and  hence,  if  called  for,  may  be  issued  to  the  whole 
extent  of  the  property  of  the  issuer,  such  currency 
being  a  self-regulating  machine,  which,  if  left  to  itself, 
will  adapt  its  volume  to  the  public  needs.  But,  (i)  paper 
uttered  against  anythiuj?  else  than  coin  or  bullion,  not 


148  CREDIT 

being  instantly  convertible  into  coin,  cannot  long  re- 
main at  par,  and  (ii)  having  depreciated  and  raised 
prices,  ceases  to  be  self-regulating  in  volume,  and 
goes  on  inviting  further  issues. 

1  A  predecessor  of  Law  was  Francis  Cradocke,  publisher,  in  1 661,  of 
'Wealth  Discovered'  [Quar.  Jour.  Econ.,  vol.  ii,  485  sqq.].  Law  said: 
"  5  oz.  of  gold  is  equal  in  value  to  ;^20,  and  may  be  made  money  to  that 
value;  an  acre  of  land  is  equal  tOji^20,  and  may  be  made  money  equal  to 
that  value,  for  it  has  all  the  qualities  necessary  in  money  "  [Perry,  293]. 
Mr.  Hugo  Bilgram,  in  the  pamph.  named  above,  presents  the  same  theory, 
recommending  its  application  as  a  means  of  economic  justice.  Law's 
bank,  which  ran  from  17 16  to  1720,  did  not  realize  his  principle  with  any 
exactness,  but  [at  last]  printed  and  marketed  paper  money  practically 
regardless  of  security.  Its  shares,  which  had  risen  from  the  par,  ;^500, 
to  ;^i8,cxx),  and  its  notes,  at  one  time  better  than  gold,  became  valueless. 
In  the  final  '  run  '  upon  the  bank,  12  persons  were  crushed  to  death.  Truer 
to  the  theory  were  the  '  assignats '  issued  by  the  Revolutionary  government 
in  1790,  1,200,000,000  francs  face  value  in  all,  based  upon  confiscated 
chuich  lands.  They  were  legal  tender,  and  receivable  for  lands  at  any 
public  sale.  By  June,  1793,  they  had  fallen  to  83  percent  of  par;  by 
Aug.,  to  16  per  cent.  They  finally  stood  at  §  of  one  per  cent.  The 
'  ttiandats,'  immediate  titles  to  lands,  were  issued  to  redeem  the  assignats, 
I  in  iiiandats  for  30  in  assignats.  But,  though  their  total  face  value  was 
less  than  the  value  of  the  lands,  after  rising  from  16  per  cent  of  par  to  40 
and  80,  they  soon  sank  again  to  5.  Joined  to  Law's  bank  was  the  '  Mis- 
sissippi Co.'  or  '  Western  Co.,'  which  had  a  monopoly  over  Louisiana,  and 
owned  a  tract  of  land  12  miles  square  on  the  Arkansas  River.  Collapse 
of  the  bank  did  not  destroy  the  colony,  though  the  settlers,  mostly  Ger- 
mans, came  down  to  the  Mississippi  near  New  Orleans,  peopling  what  is 
still  known  as  the  '  German  Coast.'     Rondel's  book  defends  the  assignats- 

§  93     Fiat  Money 

Rtcardo,  as  at  §  85.  Knits,  Geld,  xi.  Walker,  P.  E.,  153  sqq.,  also  pt.  vi,  ch.  viii. 
Hume,  '  Do  wc  Need  .i  Metallic  Currency,'  Forum,  May,  1886.  McAdam,  Alphabet 
in  Finance,  xi.  Prince-Smith,  Uneinldsbares  Pap.  Geld,  etc.,  in  Vierteljahrsch. 
f.  Volkswirtsch.,  1864,  in. 

A  school  of  monetary  writers,  inspired  by  certain 
teachings  of  Kicardo,'  would  repudiate  all  specie  basis 


CPED/T  149 

for  currency  and  make  government  the  sole  issuer  of 
it,  the  notes,  full  legal  tender  but  strictly  limited  in 
aniount,^  to  be  convertible  into  bonds,  and  the  bonds 
redeemable  in  the  notes.  The  plausibility  of  this 
scheme  to  the  popular  mind  lies  in  the  fact  that  legis- 
lative acts  may  and  often  do  in  some  sense  create 
value,  as  when  a  precious  metal,  not  so  before,  is  de- 
clared to  be  money  and  legal  tender.^  But  its  logic 
resides  in  the  principle  of  limitation  to  the  circulation, 
and  in  the  idea  that,  so  long  as  the  total  money  consists 
in  precisely  enough  dollars  to  do  the  work,  additions 
beyond  this  being  wholly  impossible,  the  value  of  the 
dollars  has  no  connection  with  the  cost  of  the  material 
from  which  they  are  made.  Could  the  conditions  be 
strictly  fulfilled  the  system  would  probably  work.* 
We  believe  this,  in  any  society  hitherto  known,  out  of 
the  question/'  Perception  that  the  notes  were  abso- 
lute, not  promissory,  must  awaken  distrust  of  them, 
leading  to  depreciation  and  to  larger  use  of  bullion, 
barter  and  all  forms  of  credit.  This  would  augment 
the  depreciation,  and  the  new  depreciation  this,  so  by 
degrees  deranging  values  beyond  hope. 

1  Ricardo,  however,  proposed  to  continue  gold  as  the  standard  and 
measure  of  value,  only  using  paper  as  the  medium  of  circulation  [§§  82, 
83].  He  would  so  hmit  the  amount  of  paper  as  to  conform  its  value- 
fluctuations  to  those  of  gold.  Most  fiat  money  men  [greenbackers]  at 
present  abjure  this  guaranty.  Ricardo  has  emphasized  as  strongly  as  any 
one  the  indispensableness  of  sovie  standard  by  which  the  value  of  money 
shall  be  gauged.  Without  this  the  whole  system  is  in  the  air.  Suppose 
we  tried  to  limit  the  circulation,  by  what  criterion  could  we  determine  how 
or  how  much  ?  Men  fail  to  feel  this  difficulty  because,  applying  in  thought 
to  their  proposed  fiat  system  the  denominations  of  our  present  promissory 
one,  they  lose  sight  of  the  difference  between  the  two.  Let  the  bills  not 
contain    the   word    'dollar'    but    bear    the  mere  legend:    "THIS  IS  ONE 


1 50  CREDIT 

Kehoe,"  "This  is  ten  Kf.hoes,"  etc.,  and  the  character  of  a  no-standard 
system  becomes  plainer.  Even  Ricardo  saw  no  way  to  regulate  the  standard 
itself,  as  suggested  in  §§  70  and  87.  Variations  in  the  value  of  gold  he 
considered  wholly  irremediable. 

'  According,  that  is,  to  the  soberer  theorists  of  this  class.  Many  little 
regard  any  necessity  of  limitation. 

8  Thus,  all  admit  that,  should  the  commercial  nations  resume  the  free 
coinage  of  silver,  this  metal  would  advance  in  value.  It  rose  somewhat 
by  the  [Bland]  Act  of  the  U.  S.  alone  [1878],  ordaining  the  coinage  of 
at  least  $2,ooo,OCX)  worth  and  at  most  $4,000,000  worth  monthly.  The 
cause  was  simply  the  enlarged  demand.  Nearer  to  a  creation  of  value  by 
liat  is  the  phenomenon  described  at  §  86,  ii,  and  n.  3.  Now,  if  value  is 
thus  imparted  to  gold,  it  is  asked,  why  not  to  paper,  and  if  some  value, 
why  not  more?  The  answer  is  that  the  suggested  parallel  between  gold 
and  paper  is  precise.  Paper  will,  by  being  made  money  on  the  basis 
proposed  by  this  plan,  appreciate  in  proportion  to  the  wider  market  thus 
opened  for  it,  but  no  further.  A  '  fiat '  dollar  would  in  time  be  worth 
precisely  the  [engraved]  paper  contained  in  it.  See  note  5.  Another 
fallacy  lurks  in  the  idea  that  the  uttering  of  paper  money  is  analogous  to 
the  coining  of  precious  metal,  and  proper  function  of  government  simply 
on  that  account. 

^  This  does  not  contradict  the  admission,  at  §  85,  that  money's  cost  of 
production  is  at  present  the  ultimate  regulator  of  its  value. 

^  The  necessary  confidence  between  man  and  man,  and  in  the  wisdom 
of  government's  action,  could  not  be  engendered.  Even  the  fact  that  the 
notes  were  legal  tender  and  receivable  for  customs  and  taxes  would  not 
quiet  all  concern.  The  state  itself  may  fall.  The  minutest  degree  of  such 
distrust  would  introduce  more  or  less  of  the  ancillary  media  of  exchange, 
which  it  would  be  wholly  beyond  the  state's  power  to  prevent. 


CHAPTER   V 

THE   CLEARING   SYSTEM 

§  94     Settlements  by  Check 

Lloyd,  '  Clearing,'  in  Lalor.  Jevons,  Mo.  and  the  Mech.  of  Exchange,  chaps,  xx-xxii. 
Rauchberg,  Neueste  Entwickelung  des  Clearing  und  Circmerkehrs,  Statist. 
Monatsschr.,  June,  1887.  Francois,  Clearing  Houses  et  Chambres  de  Com- 
pensation. 

A  vast  majority  of  inland  payments  are  made  by 
checks,  each  debtor  sending  his  creditor,  however  far 
away,  a  check  or  a  draft  on  the  bank  with  which  he, 
the  debtor,  deals.  Such  a  check,  unless  happening  to 
reach  the  drawee  bank  directly,  or  (in  a  very  small  town) 
its  neighbor  bank,  finds  its  way  back  to  the  drawee 
bank  through  some  kind  of  a  clearing  institution.  The 
clearing  will  occur  at  a  local  clearing-house,  or  the 
check  have  to  pass  through  the  national  one,^  accord- 
ing to  the  location,  banking  relations,  etc.,  of  the 
parties  to  the  transaction. 

^  The  following  diagrams  illustrate  all  this. 

I    Single  City  System 
[say]  Providence 

ABCDEFGH   I 

\|/     \|/     \|/ 
ist  Nat'l  2d  Nat'l  3d  Nat'l    etc. 


Providence 
Clearing  House. 


i«:2 


THE    CLEARING   SYSTEM 


If  Mr.  A  [or  B,  or  C],  who  banks  with  the  ist  National,  wishes  to  make 
a  payment  to  Mr.  I  [or  G,  or  H],  whose  account  is  with  the  3d  [or  to  D, 
E,  or  F,  dealing  with  the  2d],  he  draws  a  check  upon  his  own  bank,  the 
1st,  bidding  it  pay  to  the  order  of  Mr.  I  the  desired  sum.  I  turns  in  this 
check  to  his  bank,  the  3d,  which  gives  him  credit  [or  cash]  therefor,  and, 
at  the  clearing  house,  swaps  it  for  a  check  or  checks  draiun  on  itself  but 
handed  in  at  the  1st.  If  the  amounts,  in  checks,  between  any  two  banks 
do  not  match,  the  balance  is  paid  in  cash. 

II    The  National  System 


PROVIDENCE 

A  B  C  D  E  F 

\|/     \|/ 

1st  Nat'l  2d  Nat'l 
Bank       Bank 


NEW   ORLEANS 


CHICAGO 


G  H   I 


J  K  L 


M  N  O 


P  Q  R 


3d  Nat'l  4th  Nat'l 
Bank       Bank 


5th  Nat'l  6th  Nat'l 
Bank        Bank 


SAN    FRANCISCO 

S  T  U  VWX 

\|/     \|/ 

7th  Nat'l  8th  Nat'l 

Bank         Bank 


Metropolitan 


Manufacturers 


New  York 
Clearing  House 


Suppose  Mr.  B  [or  A,  or  C]  of  Providence  is  indebted  to  Mr.  X  [or  V, 
or  \V]  of  San  Francisco  [or  to  any  one  in  N.  Orleans  or  Chicago].  B, 
having  a  deposit  with  the  ist  National  in  his  own  city,  writes  a  check  upon 
that  bank,  requesting  it  to  pay  the  sum  to  X  or  his  order,  and  sends  this 
paper  directly  to  X.  The  latter  turns  it  over  to  his  bank,  the  8th  National, 
in  San  Francisco.  It  is  credited  to  him,  and  forwarded,  as  a  debit,  not 
directly  to  Providence,  but  to  some  bank  in  N.  Y.  This  may  possibly  be 
in  communication  with  the  ist  National,  of  Providence,  in  which  case  the 
check  is  forwarded  to  its  destination  directly.  Otherwise,  unless  itself  one 
of  the  [about  60]  banks  of  the  metropolis  in  immediate  relation  with  the 
clearing  hou.se  [clearing  house  banks],  the  N.  Y.  bank  first  receiving  it 


THE    CLEARING    SYSTEM  I  53 

passes  the  check  to  a  bank  which  is  thus  connected.  In  the  clearing  house 
it  falls,  through  another  debit  and  credit  operation,  into  the  hands  of  a 
clearing  house  bank  which  does  business  with  some  Providence  i)ank, 
perhaps  the  ist  National  itself.  The  grand  circuit  completed,  and  the 
1st  National  having  debited  the  amount  of  the  check  to  H,  the  latter's 
account  with  X  is  closed,  not  a  dollar  in  cash  having  been  used  [save 
for  clearing  house  balances].  The  N.  Y.  clearings  for  1881  were 
^48,565,818,212.     See  also  the  following  figures,  for  1884. 

New  Vork  Clearing  House 

Clearings  for  the  week  ending  May  3 $855,711,696 

Clearings  for  the  week  ending  April  26 707,078,332 

Clearings  for  the  week  ending  April  19 652,880,160 

Clearings  for  the  week  ending  April  12 576,804,205 

Clearings  for  the  week  ending  April  5 690,816,01 1 

Clearings  for  the  week  ending  March  29 610,332,765 

London  Clearing  House 

Return  of  Paid  Clearings  for  the  week  ending  April  23,  1884. 

Thursday ^17,172,000 

Friday   16,920,000 

Saturday 15,345,000 

Monday 1 5,905,000 

Tuesday 13,463,000 

Wednesday 15,533,000 

Total ;^94,338.ooo 

In  the  corresponding  week  of  1883  the  total  was  ^^98,078,000. 

Paris  Clearing  House. 

Dec,  1887 397.897.335  francs. 

Nov.,  1S88 448,524,956  francs. 

Dec,  1888 488,916,294  francs. 

§  95     International  Payments 

GosCHEN,  Theo.  of  the  Foreign  Exchanges,  At/.  Smith,  bk.  iv,  ch.  iii.  Macltod,  Theo. 
and  Prac.  of  Banking,  vol.  i,  ch.  viii.  Mill,  bk.  iii,  ch.  .\x.  'The  A  B  C  of  the 
Export  Bus.,'  Northwestern  Miller,  Jan.,  1889. 

Iinport.s  arc,  as  a  rule,  paid  for  not  by  bullion  but  by 
bills  of  exchange  ^  drawn  on  the  importing-  countries 


1  54  THE    CLEARING    SYSTEM 

and  soUl  to  brokers.  There  are-  (i)  time  and  sight 
bills,  (ii)  commercial  and  bankers'  bills,  (iii)  direct  and 
indirect  bills,  and  (iv)  accommodation  and  true  bills. 
If  New  York  is  iinportinji  more  from  than  exporting 
to  London,  bills  on  London  bear  a  premium  in  New 
York,  and  bills  on  New  York  are  at  a  discount  in 
London.  When  this  occurs,  exchange  and  balance  of 
trade  are  said  to  be  *  against  *  New  York.^  If  bills  in 
neither  country  bear  either  premium  or  discount,  ex- 
change is  said  to  be  at  par.  The  par  will  be  the 
weight-relation  between  the  unitary  coins  of  the  two 
nations.'*  If  the  premium  attains  a  higher  per  cent 
than  the  cost  of  the  freiglitage  and  insurance  of  gold,^ 
gold  will  be  sent  to  pay  debts  ;  but  this  soon  cures  the 
necessity  for  it,  by  lowering  prices  and  increasing 
exportations.^ 

^  International  checks  or  drafts.  Several  cases  may  arise,  i  A,  in  N.  Y., 
both  an  importer  and  an  exporter,  owing  B,  in  London,  draws  on  his  debtor 
C,  in  London,  and  sends  the  draft  to  15,  who  collects  of  C.  ii  A,  of  N.  Y., 
exports  to  B,  of  London,  and  C,  of  London,  to  D,  of  N.  Y.  B  buys  of  C  a 
draft  on  D,  and  sends  it  to  A,  who  collects  of  D.  A  and  C  are  thus  both  paid 
without  shipment  of  money,  iii  Two  brokers,  one  in  N.  Y.  and  one  in  Lon- 
don, agree  to  honor  each  other's  drafts.  A,  of  N.  Y.,  owing  B,  of  London, 
buys  of  the  N.  Y.  broker  a  draft  on  the  London  broker  and  sends  it  to  B, 
in  London,  who  collects  from  the  Londoner,  iv  The  world's  clearing 
house  is  London.  If  a  N.  Y.  merchant  wishes  to  pay  a  debt  in  Italy  he 
buys  a  draft  on  London  and  sends  it  to  his  Italian  creditor,  who  gets  the 
cash  on  it  from  Italian  brokers  in  correspondence  with  London.  Thus 
we  arc  not  obliged  to  have  direct  exchanges  with  every  country,  but  the 
majority  of  exchanges  are  effected  through  the  one  great  centre. 

■■^  Goschen,  ch.  iii.  The  'time'  allowed  for  the  payment  of  bills  not 
cashed  at  sight  is  usually  30  days,  but  may  be  60  or  90.  Time  bills  are 
cheaper  than  sight  bills,  in  a  proportion  determined  Iiy  the  rate  of  interest 
in  the  drawee  country.  Banker's  bills  arc  simple  international  checks, 
•uch  as  a  traveller  might  purchase  on  going  abroad.     Commeicial  bills  are 


THE    CLEARING    SYSTEM  155 

those  which  a  shipper  draws  upon  his  consignee  against  merchandise 
shipped,  each  accompanied  by  a  bill  of  lading,  '  to  order,'  covering 
the  property  against  which  it  is  drawn.  This  is  called  '  documentary ' 
exchange.  To  illustrate  indirect  bills :  from  Hong  Kong  for  tea  to  N.  Y. 
the  exporter  draws  on  London  instead  of  N.  Y.,  and  the  London  house 
charges  to  N.  Y.  This  item  often  settles  the  state  of  exchange  between 
two  countries  [Goschen,  p.  32].  One  day  in  Aug.,  1882,  3,200,000  Marks 
[$800,000]  went  from  Hamburg  to  London,  to  pay  for  wheat  shipped  from 
N.  Y.  to  Hamburg.  Bremen  merchants  used  to  settle  for  N.  Y.  tobacco 
by  bills  on  London  in  favor  of  N.  Y.,  and,  to  offset  these,  buy  up  bills  on 
London,  from  Dutch  cattle  and  butter  dealers.  Bombay  even  now,  in 
getting  pay  from  Bremen,  draws  on  London  against  Bremen.  Accommo- 
dation bills  are  like  drafts  on  a  bank  when  it  does  not  owe  you  [Goschen, 
37  sq.,  Macleod,  Elem.  of  P.  E.,  vol.  i,  403.  Cf.  below  §  96,  v,  and  n.  4]. 
'  It  seldom  happens  that  the  mutual  debts  of  two  countries  exactly 
balance.  Then,  by  a  terminology  now  well  understood  but  originating  in 
a  mercantilist  error  [§  7,  n.  5],  exchange  is  said  to  be  'in  favor  of  the 
country  owing  the  less,  and  '  against '  the  other.  Speaking  generally,  the 
following  phenomena  will  all  arise  together  and  be  phases  of  one  and 
the  same  state  of  exchanges,  viz. :  preponderance  of  exports,  favorable 
balance  or  exchange,  tendency  to  import  gold  [or  actual  importation], 
good  time  to  buy  exchange.  Also  the  following :  preponderance  of 
imports,  unfavorable  balance  or  exchange,  tendency  to  export  gold  [or 
actual  exportation],  bad  time  to  buy  exchange.  The  expression, '  exchange 
favorable  to  America,'  does  not  mean  that  it  is  favorable  to  American  bill- 
sellers,  exporters,  etc.,  but  to  hiW-buyers. 

*  Exchange  is  at  par  between  N.  Y.  and  London,  when,  in  one  city, 
I  can  buy,  for  a  given  weight  and  fineness  of  gold,  the  right  to  have,  in 
the  other  so  soon  as  communication  can  be  had,  the  same  weight  and  fine- 
ness delivered  to  me  or  my  representative.  The  par  of  ;^i  is  $4,866;  of 
I  Mark,  $0.2478.!;  of  4  Marks,  $0.9915;  of  i  Guilder,  $0.40;  of  i  franc, 
$o.l9305ifB;   of  5  francs,  $0.96525^^0';   of  i  Florin,  $0.47883353^?- 

*  Usually,  the  premium  can  go  no  higher  or  lower  than  the  figure  neces- 
sary to  cover  this  cost.  Not  so  in  a  great  panic.  When  Napoleon  left 
Elba  [§  96,  n.  5],  continental  exchange  in  London  rose  to  10  per  cent, 
much  more  than  enough  for  transportation  and  even  war  insurance.  Gold 
normally  begins  to  move  from  London  to  N.  Y.  when  London  exchange 
in  N.  Y.  is  at  $4.84.},  and  back  again  when  it  is  $4.90.     But  see  next  §. 

8  See  §  76. 


156  the  clearing  system 

§  96     Special  Modifiers  of  the  Rate  of 
Exchange 

Goschen,  Foreign  Exchanges,  ch.  iv.     Macleod,  as  at  §  95. 

i  All  monies  of  a  country  laid  out  abroad,^  as  by 
purchase  of  ships  or  armaments,  foreign  travel,  interest 
on  bonds  held  abroad,  or  principal  for  the  liquidation 
of  these,  tend  to  turn  exchange  against  that  country. 
ii  On  the  contrary,  all  foreign  monies  brought  into 
your  country  ^  tend  to  set  exchange  in  its  favor,  as  the 
expenditures  of  travellers  from  abroad,  or  a  loan  effected 
or  bonds  sold  there,  iii  Ocean  carrying'^  by  the  ships 
of  any  country  likewise  turns  exchange  in  favor  of  that 
country  in  relation  to  the  country  or  countries  for  which 
the  carrying  is  done.  A  country  like  Englanc^  con- 
taining a  great  commercial  entrepot,  as  London  is,  will 
also  secure  favorable  exchange  for  itself  by  the  receipt 
of  commissions,  iv  Draft  on,  and  payment  in,  London, 
of  many  indirect  bills  against  New  York,  might  set 
English  exchange  against  New  York,  coincidently  with 
a  preponderance  of  American  exports  to  England. 
V  As  the  balance  of  trade  shifts  from  one  side  to  the 
other,  shrewd  brokers,*  not  to  incur  the  double  expen.se 
of  exporting  and  soon  importing  again,  let  their  accounts 
run  till  naturally  balanced,  diminishing  thus  the 
average  cost  of  exchange,  vi  Large  merchants,  who 
can  readily  extend  the  time  of  their  transoceanic  debts 
by  paying  interest,  if  exchange  is  high,  wait  for  it  to 
fall  and  then  buy  drafts.  Rates  are  thus  kept  from 
going  either  so  high  or  so  low  as  they  otherwise  would. ^ 

'  It  is  estimated  that  $86,000,000  go  from  the  U.  S.  to  Ireland  yearly, 
in  aid  of  distress  and  agitation  there. 


THE    CLEARING    SYSTEM  I  57 

-  Thus,  in  Jan.,  1883,  though  exports  from  /Vmerica  increased,  foreign 
exchange  did  not  go  down  in  X.  \'.,  because  Englishmen  were  investing 
vast  amounts  of  money  here. 

3  The  Cologne  Gazette  computes  that  Germany  averages  to  pay  England 
;^25,ooo  a  day  in  ocean  freights  and  hank  commissions.  The  immense 
ocean  carrying  trade  of  England,  having  the  effect  of  so  much  exportation, 
explains  in  large  p.irt  why  the  balance  of  trade  is  always  apparently  against 
that  country.  This  and  other  items  account  for  the  fact  that  no  country's 
imports  and  exports  for  a  given  period  ever  appear  to  balance.  For 
the  5  years,  1 880-1 885,  exports  from  the  U.  S.  exceeded  imports  by 
§623,000,000;  from  1876  to  18S0  the  excess  reached  §921,000,000.  Total 
in  10  years,  §1,544,000,000.  What  became  of  this  vast  balance?  Net  imports 
of  specie  for  the  same  years  account  for  only  about  $50,000,000.  Some 
of  it  went  to  settle  the  balances  against  us  of  previous  years,  some  to  pay 
freight.  Another  portion  was  required  for  the  interest  and  principal 
of  foreign-held  debts.  But  v.ere  all  these  and  such  causes  away,  the 
account  would  hardly  ever  seem  even,  owing  to  the  different  scales  of 
valuation  for  imports  and  for  exports.  In  fact,  as,  in  trade,  we  prize  more 
what  we  get  than  what  we  give,  perfectly  truthful  figures  would  make 
exchange  seem  against  us  just  in  proportion  as  it  was  really  the  reverse. 
See  Thorold  Rogers,  Econ.  Interp.  of  Hist.,  97. 

*  Pairs  of  brokers,  that  is,  one  in  one  country,  the  other  in  the  other. 
Bills  on  the  country  with  an  unfavorable  balance  would  then  be  '  accommo- 
dation bills'  [§  95,  and  n.  2]. 

^  Many  more  such  modifiers  might  be  named.  Exchange  drawn  upon 
a  country  engaged  in  or  threatened  with  war  is  always  high,  owing  to  the 
risk  [§  95,  n.  5].  If  the  money  of  any  drawee  country  consists  of  depre- 
ciated paper,  or  of  coins  deficient  in  weight  and  fineness  [§  81,  n.  6], 
exchange  is  below  par.  That  is,  a  paper  giving  you  the  right  to  so  many 
units  of  that  country's  money,  can  be  gotten  for  a  sum  of  the  money  of 
your  country,  which  is  less  than  an  equivalent,  nominally,  of  the  sum 
drawn  for.  Degradation  of  your  own  money  has  an  effect  precisely 
opposite.  Before  the  adoption  of  our  constitution,  $4,444  in  [Spanish] 
American  money  was  the  established  custom-house  equivalent  of  ;^i.  By 
1837,  deductions  from  the  value  of  the  dollar  necessitated  §4.866  as  the 
equivalent  of  /'l,  an  advance  of  just  9  V  per  cent  upon  §4.444.  Still  it 
long  remained  habitual  to  reckon  on  the  old  basis  of  exchange,  stating  it 
as  at  9 1  per  cent  premium  when  it  was  really  at  par  ['  Dollar,'  in  Am. 
Cyclop.,  at  end]. 


ART 


IV 


DISTRIBUTION 


oXXc^ 


CHAPTER    I 

the  nature  of  distribution 

§  97     General  Statement 

Sidgwick,  bk.  ii,  ch.  i.  Leroy-BeauUeu,  Essai  stir  la  Repartition  du  richrise^ 
Maitgoldt,  bk.  iv,  chaps,  i,  ii.  Mill,  bk.  ii,  ch.  i.  Patten,  Premises  of  P.  E.;  Sta- 
bility of  Prices  [Am.  Ec.  Ass'n  Papers,  vol.  iii].  Schoenberg,  vol.  i,  XI.  H.  George, 
Prog,  and  Poverty,  esp.  bk.  iii.  Hertzka,  Gesetze  d.  soc.  Entwickelung.  Cher- 
buliez,  bk.  iii,  chaps,  i,  ii. 

Distribution,  as  a  rubric  in  Economics,  is  that  sub- 
stantive^ department  thereof  which  canvasses  the 
problems,  into  what  hands  the  wealth  created  by 
production  proper  and  exchange  would  naturally ^  fall, 
and  on  what  principles,  also  wherein  and  why  actual 
fortunes  differ  from  those  which  strict  economic  causes 
would  assign, — all  of  them  important  inquiries,  to  which 
economists  have  given  relatively  too  little  attention. 
It  must  not  be  assumed  ^  that  the  shares  fixed  by 
natural  or  economic  laws  are  therefore  certain  to  be 
just.  Whether,  or  how  far,  they  are  so  is  still  a 
qutistion,  among  the  most  vexing  connected  with  the 
science. 


THE    NATURE    OF    DISTRIBUTION  1 59 

^  Sidgwick,  pp.  25,  31,  adverts  to  the  new  attention  which  this  part  of 
Economics  has  received  since  Ad.  Smith.  Till  quite  recently,  in  fact,  it  has 
been  too  much  the  hal)it  of  economists  to  treat  Distribution  as  incidental, 
laying  all  stress  on  Production.  The  Professorial  Socialists  [§  13]  have 
nobly  rebuked  this. 

-  Mill,  in  his  distinction  [l)k.  ii,  ch.  i]  between  production  as  a  natural 
process,  and  distribution  as  artificial,  cannot  mean  that  the  latter  is  wholly 
given  up  to  whim  and  custom.  This  would  certainly  be  an  error.  But 
relatively  arbitrary  influences  confessedly  play  here  a  great  part. 

^  Sidg\vick,  498  sqq.  Cf.  all  the  socialist  writers.  The  assumption  is 
made  by  orthodox  economists  almost  to  a  man  —  a  source  of  infinite  con- 
fusion in  their  discussions.  There  is  no  necessary  sacredness  to  mere 
operations  of  nature.  Many  of  them  it  is  the  work  of  reason  and  civiliza- 
'.ion  to  correct.  Progress  largely  consists  in  this.  H.  George,  in  saying 
[.Social  Prolilems]  "The  just  distribution  of  wealth  is  manifestly  the  nat- 
ural distribution  of  wealth,  and  this  is  that  which  gives  wealth  to  him  who 
makes  it,  and  secures  wealth  to  him  who  saves  it,"  cherishes  a  purely  a 
priori  notion  of  '  natural.'  So  does  Giddings  [Mod.  Distributive  Process] 
in  calling  '  natural '  that  rate  of  wages  which  secures  the  highest  productive 
power.    These  ideas  are  nevertheless  very  wholesome. 


§  98     Categories  and  Shares 

Walker,  P.  E.,  pt.  iv,  ch.  i.     Crehore,  Quar.  Jour.  Econ.,  vol.  ii,  361.     Webb,  ibid., 
188  sqq.,  469  sqq.     Mangoldt,  §§  85-95. 

The  net  product  of  a  people's  industry  for  a  given 
natural  period,  viz.,  the  increment  to  wealth  which 
remains  1  after  making-  good  the  stock  present  at  the 
outset,  finds  its  way  into  five^  theoretically  separate 
categories,^  determined  thither  by  special  causes. 
I  The  permanent  monopolist  of  any  material  neces- 
sary to  production  receives  rent  in  virtue  of  his  pro- 
prietorship, II  The  capitalist,  interest,  for  the  same 
reason,  plus  abstinence.  III  The  laborer,  wages,  for 
his  toil,  IV  The  undertaker,  profits,  for  the  use  of 
his  ability  to  organize  and  superintend,'*  and  V  The 


l60  THE    NATURE    OF    DISTRIRUTION 

auoiualous  recipient,  aiioinalous  fortune,  for  a  variety 

of  reasons,  often  excessively  hard  to  analyze.^ 

1  The  strict  '  dividend  '  would  of  course  embrace,  what  we  here  omit  for 
the  sake  of  simplicity,  the  jiroilucls  [including  services]  enjoyed  in  the 
course  of  the  period.  These  seem  to  follow  the  same  law  as  the  rest. 
'Net  product'  does  not  exclude  all  costs  of  production  [§§  47,48],  but 
only  the  wealth  used  up  or  worn  out.  It  includes  what  goes  for  interest, 
wages,  profits.  See  following  Chapters.  On  the  nature  of  national  income, 
Mangoldt,  as  above,  is  best.  It  may  be  gotten  at  by  summation  of  par- 
ticular//Wwf  A  or  of  particular  incomes.  With  either  method,  much  care 
is  needed  to  exclude  error.  In  general,  a  nation's  income  is  simply  the 
total  proceeds  of  its  own  and  its  subjects'  industries.  Ikit  it  may  also 
receive  tribute,  indemnity,  or  interest  from  another  nation,  or  enjoy  a  per- 
manent net  advantage  over  others  in  foreign  trade. 

-  If,  in  a  large  and  developed  society,  we  look  at  any  single  industry 
by  itself,  a  sixth  category  appears,  viz.,  the  general  public,  embracing  the 
beneficiaries  of  all  the  five  categories  of  every  business  aside  from  the  one 
in  question.  In  other  words,  the  people  immediately  interested  [as  win- 
ners of  rent,  interest,  wages,  or  profits]  in  cotton  manufactures  [either  at 
a  given  factory  or  in  general]  are  not  the  only  ones  interested.  Through 
exchange  [§§  53,  54],  it  disseminates  advantage  everywhere,  in  more  or 
less  perfect  return  for  its  own  extra  profitableness  in  consequence  of  so 
great  a  market  [§  31,  esp.  n.  4].  It  is  olivious,  however,  tliat  when  the 
whole  round  of  the  industries  is  taken  together,  this  extra  category  must 
in  effect  dissolve  and  disai)pear  by  a  process  of  mutual  cancellation. 

3  On  Method  in  Distribution,  or  the  logical  order  of  its  topics,  George, 
Prog,  and  Poverty,  bk.  iii,  chaps,  i,  vii, 

<  The  words  express  but  very  inadequately  the  real  nature  of  the  under- 
taker's office.  See  Chajjter  V.  On  the  close  analogy,  identity  even,  be- 
tween the  principle  of  rent  and  that  of  profits,  see  §§  103,  119. 

*  The  pupil  must  not  expect  satisfactorily  to  understand  this  §  apart 
from  the  two  following,  and  not  exhaustively  until  the  remaining  Chapters 
in  Distribution  have  been  studied.  The  subject  is  complex,  and  cannot 
be  truthfully  expounded  in  the  cursory  and  apparently  simple  manner 
hitherto  so  common.  Observe,  too,  that  upon  many  matters  touching  dis- 
tribution authors  are  still  divided  and  scientific  opinion  now  in  the  process 
of  formation.  Its  trend  we  propose  to  indicate  in  our  sketch,  referring  for 
fuller  light  to  the  latest  and  best  literature. 


THE    NATURE    OF    DISTRIBUTION  l6l 


§  99     Blending 

Same  authh.  as  at  §  97. 

While  these  functions  and  categories  are  really  dis- 
tinct and  scientific  analysis  demands  their  separation, 
two  or  more  of  them  are  usually  represented  in  one 
person,  who  thereby  participates  in  the  product  under 
a  plurality  of  titles.^  Thus  the  small  farmer,  owning 
and  himself  working  his  capital  and  land,  unites  them 
all.  A  socialist  community,  viewed  as  a  whole,  would 
do  the  same.  All  laborers  save  the  lowest  receive, 
besides  wages  in  the  narrowest  sense,  earnings  on  intel- 
lectual capital,  as  well  as  profits  or  rent  of  ability.^ 
In  a  society  of  low  industrial  organization,  to  a  large 
extent  in  America  even  yet,  capitalists  are  also  under- 
takers, and  vice  versa.^  In  England  these  functions 
coincide  more  wath  cla.s.se.s,  which  has  hitherto  been  the 
general  tendency  of  industrial  advance  everywhere.*  At 
present,  however,  both  capitalists  and  undertakers  more 
and  more  derive  gains  from  monopoly. 

^  That  is,  we  do  not  here  have  in  view  so  much  different  classes  of 
human  beings  as  different  industrial  functions  and  their  workings.  See, 
more  fully,  §  loi. 

2  See  §§  103,  121. 

*  In  any  joint  stock  undertaking  each  participant  may  be  regarded  as 
at  once  capitalist  and  undertaker,  since  the  whole  stockholding  body  is 
both.  Every  stockholder  of  course  owns  part  of  the  capital :  he  also,  at 
least  indirectly,  by  voting  upon  directors  and  policy,  has  weight  in  man- 
aging the  business. 

*  Now  counteracted  and  negatived,  somewhat,  by  the  movement  toward 
Socialism.  See  Webb,  Socialism  in  England,  Papers  of  Am.  Econ.  Ass'n, 
vol.  iv.  Whether,  and  if  so,  how  far,  tliis  movement  is  healthy,  perhaps  no 
man  living  is  wise  enough  to  say. 


l62  THE    NATURE    OF    DISTRIBUTION 


§  ICO     The  Law  of  Equal  Returns  to  Last 

Increments 

IVebb,  '  Rate  of  Interest  and  Laws  of  Distribution,'  Quar.  Jour.  Econ.,  vol.  ii. 

According  to  the  pure  theory  of  economic  distribu- 
tion, presupposing  oinniscience  and  the  perfect  mobil- 
ity of  the  various  means  of  production  both  to  prevail 
throughout  an  industrial  community,  competition,  in  its 
effort  to  secure  the  maxiiuiiiu  utility  for  given  sacrifice, 
would  so  dispose  and  arranj?e  capital,  skill,  and  human 
energy,  that  the  last  application  of  any  one  of  them  at 
any  point  or  in  any  way,  would  evoke  as  great  a  return 
per  unit  of  the  factor  applied,  as  the  last  application  made 
elsewhere  or  in  any  other  way.  And  in  actual  fact, 
competition,  though  imperfect,  is  sufficient  to  maintain 
a  constant  tendency  to  the  realization  of  this  law.^ 

1  In  agriculture,  e.g.,  the  operation  of  the  law  of  diminishing  return 
[§  34]  prevents  all  workers  from  concentrating  at  the  same  point,  while 
each  new  comer  will  seek  to  work  at  the  most  advantageous  point  all  things 
considered.  There  must  be  theoretically,  at  any  time,  a  certain  arrangement 
of  labor,  skill  and  capital  upon  the  land,  which  will  get  from  it  the  maximum 
of  utility.  That  ideal  order  may  never  be  actually  reached,  l)ut  so  far  as 
self-interest  prevails,  and  is  enlightened,  there  cannot  but  be  a  steady 
approximation  thereto.  Skill,  capital,  and  labor,  as  well  as  land,  will  be 
put  in  requisition  according  to  the  same  law.     Weljb,  as  above,  p.  194. 

§  101     The  Other  General  Laws  of  Distribution 

Webb,  as  at  §98.     Clark,  '  Possibility  of  a  Sci.  Law  of  Wages,'  Am.  Ec.  Ass'n  Papers, 
vol.  iv.     Fatten,  '  Stability  of  Prices '  [ibid.,  vol.  iii].     Mangoldi,  §§  128  sqq. 

These  are  two,  (i)  the  static  and  (ii)  the  dynamic. 
i  Supposing,  at  any  given  time,  a  community  where 
perfect  knowiedf^e  and  competition  existed,  with  no 
artificial    hindrances  to  the  play  of   economic  causes 


THE    Ny\TURE    OF    DISTRIBUTION  163 

in  distribution,  we  should,  partly  a  priori,  partly  from 
experience,  expect  the  proceeds  of  its  industry  to  be 
classifiable  as  follows.  Wages  proper  would  be  the 
return  to  the  simplest  form  of  labor,^  absolutely  un- 
helpcd,  or,  if  applied  with  aids,  the  reward  of  the  pro- 
portion not  owing  to  these.  All  surplus  gotten  by  labor 
in  virtue  of  location,  native  fertility  or  other  not  indi- 
vidually created  advantages  connected  with  land,  would 
be  Kent,  which  would  also  cover  the  proceeds  of  all 
fixed  material  monopolies.  Excess  proceeding  from 
the  use  of  native  skill  superior  to  that  of  the  simplest 
labor,  would  be  Prolits.  Whatever  increase  was  due 
to  the  employment  of  capital,  material  or  immaterial, 
would  be  Interest.  Gains  not  referrible  to  any  of  the 
above  sources,  present  to  some  extent  in  the  best  con- 
ceivable social  organization,  would  form  a  Fifth  Cate- 
gory, ii  If,  now,  introducing  the  dynamic  element,  we 
consider  the  productive  process  as  in  movement,  the 
various  factors  ^  in  production  will  tend  to  be  remunera- 
tive in  proportion  to  the  slowness  of  their  increase, 
competition  enabling  the  hindmost,  especially  by  reap- 
ing the  benefit  of  improvements,  to  enlarge  its  share 
at  the  expense  of  the  others.^ 

1  This  is  doubtless  a  somewhat  indefinite  conception.  All  labor,  as  we 
have  seen  [§  25],  involves  an  intellectual  element.  The  labor  here  meant 
is  that  into  which  enter  no  training  and  no  special  native  gifts. 

"  Land  resources,  capital,  supervising  and  planning  ability,  and  simple 
labor. 

8  Patten,  as  above  [sec.  iv,  esp.  p.  37],  well  develops  the  second  law. 
It  operates  through  competition.  Overlooking  the  effects  of  diminishing 
returns  [§  34],  suppose  capital  to  be  doubling  in  30  years,  the  labor  force 
[§§  35>  36]  in  20.  Wages  will  fall,  till  population  increases  less  rapidly 
than  capital,  that  which  is  lost  to  wages,  along  with  all  gains  from  im- 
provements, going  to  capitalists  through  rise  in  the  rate  of  interest.     So, 


164  THE    NATURE    OF    DISTRIBUTION 

if  land  facilities  are  multiplying  slower  than  either  labor  or  capital,  land 
rent  will  be  swollen  at  the  expense  of  both,  most,  however,  to  the  loss  of 
the  one  getting  on  the  faster.  Cf.  carefully  the  follo%ving  Chapters :  also 
Patten. 

§  102     The  Fifth  Category 

It^agyter,  Lehrbuch,  vol.  i,  §§  300  sqq.     George,  Prog,  and  Poverty,  bk.  iii,  ch.  iv. 
Walker,  P.  E.,  pt.  iv,  ch.  vi.     Hertzka,  Gesetze  d.  soc.  Eniwickelung. 

Rent,  interest,  wages  and  profits  by  no  means  ex- 
liniist  the  product  of  industry.  Xon-producers  may 
share  therein,  or  producers  get  an  undue  share,  in 
almost  innumerable  ways,  chief  among  which  are  the 
following  :  i  Gifts  otlier  than  charitable,  as  to  one's 
family  or  friends,  ii  Charity  in  its  endless  variety  of 
forms,  iii  Gambling,'  in  which  stock  and  exchange 
gambling  must  be  included,  iv  Fraud,  theft,  and  rob- 
bery, of  all  sorts,  v  Casual  monoiioly,^  whether  nat- 
ural, accidental  or  based  on  legislation  or  on  immensity 
of  financial  power,  vi  Unfair  legislation  or  adminis- 
tration in  other  things,  vii  Changes  in  the  value  of 
money.'^ 

1  See  §  21,  n.  7. 

2  See  §§  66,  67.  A  good  illustration  is  the  fortune  amassed  in  London 
one  day  in  June,  181 5,  by  Baron  Rothschild  and  Moses  Montefiore,  as  sole 
possessors  of  the  secret  that  Napoleon  had  left  Elba  and  landed  in  France 
[§  95,  n. -5].  They  bought,  low,  credits  which  appreciated  immensely  soon 
as  the  tidings  became  known.  Permanent  monopoly  gains  from  any  sort 
of  material  possession  we  reckon  as  rent  [§  103]. 

«  See  §  87. 


CHAPTER   II 

RENT 

§  103     Rent  in  General 

Maiigoldi,  ^^  120  t,c[(\.  Schaeffle,  Pol.  Oek.,^  -^00;  Thco.  d.  ausschl.  Absatzverhalt- 
nisse,  iii-vii.  IVagner,  Lehybuch-,  vol.  i,  §  301.  George,  Prog,  and  Poverty,  bk. 
iii,  ch.  ii.     Cherbuliez,  bk.  iii,  ch.  vi. 

Kent,  in  the  broadest  sense,  is  any  kind  of  gain 
arising  from  niouoi>oly,  whether  in  land,  capital,^  or 
talent  —  income  which  falls  to  the  possessor  of  any 
productive  agency  simply  because  of  its  rarity.  Rent 
forms  no  part  of  the  cost  of  procluction,^  and  is  pay- 
ment for  no  service.  It  swells  individual  fortunes  only 
at  the  expense  of  society  as  a  whole.  To  the  total 
revenue  of  the  world,  or  of  a  nation  or  an  industrial 
group  not  exchanging  with  any  other,  it  therefore  adds 
nothing-,  nor  does  it  subtract,  except  as  dissuading  from 
industry.  On  the  other  hand,  rent  docs  not  cause  high 
prices,  but  is  caused  by  them.^  It  is  usual  and  well 
to  restrict  the  term  '  rent '  to  winnings  from  somewhat 
permanent  monopolies,  though  the  idea  does  not  neces- 
sarily presuppose  such  limitation. 

1  Such  cases  as  are  mentioned  at  §  65,  notes  4  and  5,  are  really  cases 
of  rent  [on  capital].  For  land  rent,  or  ground  rent,  see  §  104.  Profits 
and  special  wages  [see  Chapters  III  and  IV]  also  involve  the  rent  prin- 
ciple. English  writers  have  usually  confined  the  term  to  ground  rent 
[§  104].  (hir  use  of  the  word,  which  seems  to  us  to  have  very  much  in  its 
favor,  is  that  of  Mangoldt  and  Schaelllo. 

"  See  §  105. 


I 66  RENT 


§  104    Ground  Rent 

Ricardo,  Prin.  of  P.  E.  and  Taxation,  chaps,  ii,  xxiv.  Mill,  bk.  ii,  ch.  xvi.  Rofiher, 
bk.  iv,  ch.  ii.  Maine,  Village  Communities,  vi.  Walker,  Land  and  its  Rent;  P.  E. 
[cither  cd.],  '  Rent.'  Cf.  Int'l  Rev.,  vol.  xii.  Rossi,  in  Coiirs  d'Econ.  pol.  H. 
George,  Progress  and  Poverty.  Cairnes,  Log.  Meth.,  29,  n.,  50  sqq.  IVachenhtt- 
seti,  U titer  sue  hi4ngen  ueber  Griindrente.  Hertzka,  Sociale  Eniwickelung,  ch. 
vii.     Patten,  Premises  of  P.  E.,  i. 

Ground  rent  is  the  advantage  accruing^  to  land- 
owners from  the  u.se  of  certain  uncreated  or  socially 
created  -  powers  and  utilities  connected  with  land, 
including",  besides  mere  fertility  of  soil,  also  mineral 
wealth,  water-privileges,  location,  etc.  Return  from 
the  occupation  of  land,  as  the  most  common  form  of 
ground  rent,  furnishes  the  most  obvious  and  useful 
matter  wherewith  to  illustrate  the  doctrine. 

^  The  definition  must  be  thus  wide  because  the  essence  of  rent  is  present 
whether  land  is  owned  privately  or  by  the  community.  Of  the  spots  which 
at  any  time  have  to  be  occupied,  some  are  better  than  others.  Both  socialism 
and  the  mere  policy  of  nationalizing  the  land  would  try  to  distribute  this 
advantage,  but  nothing  could  abolish  it.  For  varying  and  loose  uses  of  the 
word  rent,  note  3,  below,  and  §  106.     Cf.  Mill,  bk.  ii,  chaps,  viii-x. 

2  Capital  inwrought  into  land  will  bear  rent  if  the  land  does.  This  is 
strictly  not  ground  rent,  though  inseparable  therefrom.  It  differs  from  the 
normal  return  on  such  capital,  which  is  interest  [§  106,  iv,  and  n.  i].  Cf. 
§  19,  i,  n.  2.  Let  a  considerable  number  of  human  beings  settle  in  a  new 
country :  special  value  instantly  attaches  to  particular  localities,  and  this 
with  no  act  of  creation  save  the  act  of  the  people  in  coming  there.  But 
much  land  value  is  socially  created.  The  Dutch  purchased  all  Manhattan 
Island  for  60  guilders,  about  $24.  On  the  main  street  fronts  in  N.Y.  City 
that  sum  would  to-day  not  purchase  a  single  foot.  Store  sites  on  Pifth 
Ave.  cost  in  1886  $65  per  sq.  ft.;  $85  have  been  paid  on  Broad  St.,  and 
Sioo  and  $115  on  Broadway.  Shares  of  a  land  company  at  Birmingham, 
Ala.,  costing  51,100,  recently  paid  a  yearly  dividend  of  $24,000.  In  Lon- 
don land  has  often  sold  for  3240  per  foot,  and  select  spots,  it  is  said,  for 
as  much  as  it  would  cost  to  pave  them  with  English  sovereigns  laid  upon 
edge.  Such  dcarness,  springing  though  it  does  from  a  sort  of  human 
agency,  is  not  the  product  of  conscious  doing  on  the  part  of  any  one  per- 


RENT  167 

son.     In  bringing  it  into  l)eing,  A,  R,  and  C  were  instruments,  not  agents. 
.See  'Giojnd-rents  in  Philad.,'  Quar.  Jour.  Econ.,  Ap.  i{ 


§  105     Rent  and  Price 

Mill,  bU.  ii,  ch.  xvi,  sec.  3  sqq.     Ricurdo,  Principles,  ch.  xxiv.     Walker,  P.  E.,  §  243. 

Since,  as  a  rule,  all  land  will  be  cultivated  just  so  fast 
and  far  as  it  pays  the  cost  of  cultivation,  the  rent  of 
land  always  tends  to  represent  the  surplus  of  gain  arising 
from  cultivating  better  land  over  the  gain  of  cultivat- 
ing the  poorest  that  is  cultivated  at  all,^  'better'  and 
'poorest'  here  referring  to  location  as  well  as  to  quality. 
It  follows  that  so  long  as  unused  land  is  still  accessible ^ 
and  freely  resorted  to,  rent  can  never  become  factor  in 
the  price  of  agricultural  produce,  for  this  price,  as 
always  where  the  law  of  diminishing-  return  has  begun 
to  work,  is  fixed  by  the  dearest  cost  of  production, 
which  falls  precisely  upon  the  no-rent  tracts.  Capital 
rents,  in  like  manner,  never  enter  into  the  prices  of 
products. 

1  Compare  with  this,  §  34.  The  margin  of  cultivation  tends  to  move 
outward  with  the  increase  of  population,  land  to-day  bearing  rent  which 
did  not  do  so  years  ago,  etc.  But  new  fertilizers,  and  new  agricultural 
machinery  and  methods  may  hinder  this.  A  particular  new  need  for  food 
might  be  thus  entirely  satisfied  without  extending  cultivation  at  all.  We 
may  therefore  speak  of  an  '  intensive  margin  of  cultivation,'  as  well  as  an 
extensive.  Variety  of  appetites  is  a  further  element  of  irregularity  in  the 
taking  up  of  land.  Soil  ill  fitted  for  one  crop  may  grow  another;  poor 
arable  may  be  good  pasture,  etc.  [Patten,  as  at  §  104;  also  in  Stability 
of  Prices,  Am.  Ec.  Ass'n  Papers,  vol.  iii.J 

-  Suppose  no  more  land  to  be  obtainable.  At  once  begins  a  com- 
petition, which  did  not  exist  before,  for  the  poorest  lands,  which,  under 
private  ownership,  owners  will  promptly  utilize  by  charging  rent.  To  pay 
this,  the  produce  from  these  tracts  too  must  lie  sold  higher.  Under  tlicse 
circumstances,  therefore,  rent  will  appear  in  price.    The  statement  in  the 


I 68  RENT 

first  part  of  this  §,  as  to  the  measure  of  rent,  will,  however,  still  hold  true. 
That,  normally,  rent  does  not  appear  in  price,  Hume  saw,  though  Ad. 
Smith  did  not  [cf.  Bagehot,  Ec.  Studies,  iii]. 

§  io6     Peculiar  and  Nominal  Rents 

IValker,  P.  E.,  pt.  iv,  ch.  ii. 

Rents  of  mines,  water-privileges,  building-lots,  etc., 
are  determined  by  the  same  general  law  with  agricul- 
tural rents.  Yet  notice  here  that :  i  The  location  of 
a  lot,  not  its  fertility,  usually  settles  its  rent,  though, 
ii  Lowest  town-rents  coincide  with  the  value  of  the 
lots  for  tillage,  iii  The  so-called  rent  of  buildings 
themselves  is  usually  not  rent  proper  but  interest  of 
capital,  iv  The  normal  return  for  improvements^  on 
land  is  also  not  rent,  though  often  practically  insepara- 
ble from  it.2  V  With  increase  of  the  ground  rent  on  a 
spot  of  land,  capital  rent  often  attaches  to  the  build- 
ings situated  thereon,  as  well  as  to  the  improvements 
incorporated  therein,  vi  The  tendency  of  long  work- 
ing is,  in  mines  toward,  in  lands  away  from,  the  no- 
rent  condition.'^ 

1  Hedges,  ditches,  grading,  roadways,  artificial  fertility,  etc.  Cf.  §  104, 
n.  2. 

2  This  fact  seems  to  a  considerable  extent  the  occasion  of  the  erroneous 
view  referred  to  in  §  107. 

3  Mines  often  become  so  deep  that  it  no  longer  pays  to  use  them.  Any 
given  piece  of  land,  on  the  other  hand,  despite  the  law  of  diminishing 
return  [§  34],  is  likely,  with  the  growth  of  population,  to  bear  higher  and 
higher  rent.  There  is  no  necessity  that  a  piece  of  land  should  be  worn 
out  by  cultivation,  though  extended  through  centuries. 


RENT  169 


§  107     Controversy 

Mill,  as  at  §  104.  Schaeffle,  Ban  iind  Leben  des  soctalen  KSrpers,  vol.  iii,  433  [also 
as  at  §  103J.  Wirth,  in  I'ierieljahrsch.  f'tir  Vclkswirtsch.,  1863,  vol.  ii.  H.  C. 
Carey,  Priii.  of  P.  K.  Yves  Guyot,  Set.  Econ.,  bk.  v,  ch.  i.  I'atten,  Premises  of 
P.  E.,  i. 

'This  is  the  theory  of  rent  first  propounded  at  the 
end  of  the  la.st  century  ^  by  Dr.  Anderson,  and  which, 
neglected  at  the  time,  was  almost  simultaneously  redi.s- 
covered  twenty  years  later,  by  Sir  Edward  West,  3Ir. 
Malthus,  and  Mr.  Ricardo.'-  Most  of  the  leading 
econonii.sts'^  still  approve  it.  First  challenged  by  Hoff- 
man,'* in  183 1,  it  has  since  been  earnestly  opposed  by 
three  eminent  writers,  Carey,  Bastiat,  and  Max  Wirtli, 
who  reduce  rent  to  interest  and  maintain  that  no  mere 
power  of  nature  can  be  made  to  yield  a  price.  Their 
appeal  to  facts  is  unsuccessful:  differences  of  rent  do 
not  at  all  coincide  with  differences  in  the  amounts  of 
capital  applied  to  different  lands.  Nor  is  their  doc- 
trine a  whit  better  than  Ricardo's  as  weapon  against 
socialism.'' 

1  The  pamjihlet  really  appeared  in  1777. 

2  Mill,  as  above,  lie  adds:  "It  is  one  of  the  cardinal  doctrines  of 
P.  E.,  and,  until  it  was  understood,  no  consistent  explanation  could  be  given 
of  many  of  the  more  complicated  industrial  phenomena." 

3  Besides  Walker,  we  mention  Wagner,  SchaefTle,  de  I.aveleye,  Roscher, 
and  MangoUlt.  Mill  and  Hermann  argued  for  it  stoutly.  SchaeRle  de- 
clares that  its  critics  have  not  shaken  it  "  in  the  slightest."  Patten's  criti- 
cisms do  not  touch  the  substance  of  the  doctrine,  and  are  not  always  just 
even  to  the  Ricardian  exposition. 

*  Chief  of  the  Prussian  statistical  bureau,  in  an  address  delivered  in 
1 83 1.  Next  came  Carey,  in  1837,  probably  ignorant  of  Hoffman's  con- 
tention. Bastiat  wrote  in  1848,  merely  repeating  Carey  \_IIarinonies  £iOit., 
xiii].  Carey's  view  is  discussed  by  Wirth,  as  above,  and  by  Mill,  bk.  ii, 
ch.  xvi,  §  5.     It  boots  nothing  to  allege  with  Carey  that  improvements  on 


I70  RENT 

land  [in  U.S.,  r.^.]  have  cost  more  than  tlic  land  would  bring.  Many 
of  them  have  been  foolislily  inailc,  and,  what  is  mnrc  to  the  point,  for  par- 
ticular lots  and  localities,  the  statctiteiit  is  not  true.  Equally  vain  is  Hoff- 
man's plea  that  land  value  always  originates  in  labor  [see  above,  §  104, 
n.  2].  Specially  weak  is  it,  with  Yves  Guyot,  to  think  Ricardo  all  wrong 
because  of  his  error  in  assuming  that  tlic  richest  land  is  always  occupied 
first.  But  if  these  w  riters  mean  (which  can  hardly  be  the  case)  only  that 
the  product  which  mankind  as  a  icJiolc  gets  from  the  land  is  measured  and 
determined  by  its  toil,  are  they  correct  [§  103]  ?  The  same  is  true  of  a 
nation  having  no  foreign  commerce,  also  of  one  which  has,  unless  it  pos- 
sesses net  advantage  over  those  with  which  it  trades  [§  68  and  n.].  But 
this  is  no  contradiction  to  the  fact  of  rent. 

^  Wirth  urges  that  the  Ricardian  theory  makes  rent-taking  unjust,  a 
winning  which  is  not  an  earning,  while  his  own  view  considers  rent  nothing 
but  a  form  of  interest.  But  in  fact  the  title  of  the  great  British  landlords 
[in  question]  to  their  income  is  ethically  no  clearer  on  the  one  assumption 
than  on  the  other.  It  was  the  fact  of  rent  [as  privately  monopolized]  that 
led  Proudhon  to  his  famous  thesis,  "property  is  robbery"  \la  propriiie, 
c'est  levol^ 


CHAPTER   III 

INTEREST 

§  io8     The  Nature  of  Interest 

IVebb,  as  at  §  lOo.  H.  George,  Prog,  and  Poverty,  bk.  iii,  cli.  iii.  Clark,  '  Capital  and 
its  Earnings,'  Am.  V.c.  Ass'n  Papers,  vol.  iii.  Bohm-Baiverk,  Kapital  it.  Kapital- 
zins,  bk.  iii.     Knies,  Der  Credit,  viii.     Sidgwick,  bk.  ii,  ch.  vi. 

Economic  interest  is  that  portion  of  the  proceeds  of 
industry  which  arises  in  consequence  of  the  employ- 
ment of  capital:  in  other  words,  the  wealth  which,  by 
the  aid  of  capital,  men  with  given  native  skill,  given 
energy  and  felicity  of  situation,  create  over  and  above 
what  they  could  create  using  those  same  helps  but 
without  capital.  Interest  varies  according  to  the  un- 
like advantages  supplied  to  labor  by  the  different  forms, 
locations,  and  applications  of  capital,  some  pieces  of 
capital  assisting  labor  little,  perhaps,  temporarily,  not  at 
all,  while  others  are  absolutely  indispensable.  Econo- 
mic interest  differs  more  or  less  from  loan  interest,^ 
whether  (i)  at  the  current  rate  for  short  loans  or  for 
long,2  or  (ii)  at  the  normal  rate,^  to  which  variations  in 
current  rates  tend,  in  any  community,  to  conform  for 
considerable  periods  of  time. 

1  It  will  be  seen  that  the  essential  fact  of  interest  does  not  presuppose 
a  loan,  interest  upon  loans  being  a  subsidiary  and  incidental  phenomenon, 
growing  out  of  the  division  of  lalior  and  the  diversities  of  human  ability 
and  circumstance.  Intellectual  capital  of  course  cannot  be  loaned,  though 
its  services  may  be  hired  [§  113]. ' 

2  Rates,  i.e.,  always  being,  if  other  things  are  equal,  the  higher  the 


172  INTEREST 

shorter  the  term  —  higher  at  banks  of  discount,  discounting  only  for  days, 
weeks  and  months,  than  at  savings  banks,  which  loan  for  years. 

8  •  Rate '  is  not  a  happy  form  in  which  to  conceive  economic  interest. 
'  Portion  of  product '  is  better.  Yet  to  think  of  it  as  a  percentage  need 
not  mislead  if  we  bear  in  mind  that  its  '  rate '  may  vary  widely  from  the 
rate  of  loans,  and  is  in  fact  a  very  different  thing. 

§  109     Loan  Interest 

H.  George,  as  at  §  108.     Atkinson,  '  What  makes  the  Rate  of  Int.?',  Intl.  Rev.,  vol.  xi. 
Bchm-Bau-erk,  vol.  i.     Kni'es,  Credit,  vii. 

Nearly  all  theories  of  interest  err  in  narrowing  the 
problem  to  loan  interest  instead  of  viewing  this  as 
incidental  to  the  larger  one  of  interest  in  general.  But 
of  loan  interest  itself  most  accounts  are  very  defective. 
i  One  set  of  writers  mistakenly  call  interest  robbery,^ 
ignoring  its  natural  source  in  capital  and  production. 
ii  Others  fail  in  merely  referring  it  to  the  productivity 
of  capital,^  overlooking  the  elements  of  ab.stinence, 
time,  and  ri.sk.  iii  Certain  authors  seem  to  conceive 
ab.stinence  not  only  correctly  as  indispcn.sable  to  in- 
terest, but  incorrectly,  as  its  efficient  cause.-^  To  the 
elements  of  truth  contained  in  these  three  views  needs 
to  be  added  the  one  first  put  in  its  true  light  by  Bohm- 
Bawerk,*  that  'a  loan  is  in  fact  an  exchang-e  of  present 
affainst  future  goods,'  so  that,  as  'present  commodities 
normally  command  a  premium  over  future  ones  of  like 
kind  and  quantity,  a  definite  sum  of  present  wealth  is 
to  be  had  only  at  the  price  of  a  greater  in  futures.' 
This  premium  is  the  pure  loan  interest.  Gro.ss  loan 
interest  contains  the  further  clement  of  insurance 
against  risk. 

'  Marx,  and,  in  part,  Rodbertus.     See   Marx,  Capital,  vol.  i,  pt.  iii. 
Bohm-Bawerk  criticises  the  view  in  his  vol.  i,  ch.  xi. 


INTEREST  173 

2  Closely  allied  with  this  theory  are  3  variants :  i)  the  notion  of  James 
Mill  and  M'Culloch,  that  interest  is  nothing  but  the  wages  of  the  labor 
stored  up  in  capital;  ii)  the  'fructification'  theory,  advanced  by  Turgot 
and  in  a  modified  form  favored  by  II.  George,  that  capital  at  large  draws 
interest  because  some  of  it,  as  land  [Turgut],  animals,  bees,  wine  [George], 
is  actually  or  in  effect  live  capital,  bringing  forth  value  without  concur- 
rent labor;  and  iii)  the  'usufruct'  theory,  of  J.  B.  Say,  Hermann,  and 
Mcnger,  v.hich  derives  interest  from  a  supposed  peculiarly  profitable  em- 
ployment of  it,  yielding  gain  over  and  above  its  natural  productivity, 
Bohm-Bawerk  [vol.  i]  keenly  and  at  length  reviews  all  these. 

"  Senior  and  Bastiat  are  referred  to,  but  one  cannot  agree  with  Bohm- 
Bawerk  in  supposing  them  to  have  meant  all  that  many  of  their  utterances 
would  imply.  Rees,  in  From  Poverty  to  Plenty,  also  wrongly  considers  the 
truth  of  the  abstinence  theory  to  involve  the  falsehood  of  all  productivity 
theories. 

*  Vol.  i,  308;  vol.  ii,  sec.  iv.  We  must  emphasize  the  truth  that  'cap- 
ital,' not  '  money,'  is  the  true  correlative  of  interest.  Contrary  to  Bilgram's 
thought  [Iron  Law  of  Wages],  money  is  rarely,  if  ever,  really  the  form  of 
capital  for  the  use  of  which  interest  is  paid.  Money  usually  only  aids 
to  mediate  the  transfer  of  capital  to  the  borrower's  hands.  It  may  (i)  be 
the  full  and  sole  agent  of  this  transfer,  or  (ii),  the  more  frequent  case, 
only  give  denomination  to  credit-instruments  serving  the  same  purpose. 

§  1 10    The  Rate  on  Loans 

Walker,  P.  E.,  pt.  iv,  ch.  iii.    Mangoldt,  §§  102  sqq.     Sidgwick,  bk.  ii,  ch.  vi. 

The  rate  of  loan  interest  is  determined  by  the  ordi- 
nary law  of  supply  and  rteinand,  except  in  this,  that 
inasmuch  as  desire  and  reluctance  to  borrow  and  to 
lend  are  influenced  by  every  circumstauee  that  affects 
business,^  supply  and  demand  of  loans,  and  hence  the 
rate  of  interest,  vary  and  fluctuate  more  than  other 
prices  do.  The  chief  modifiers  are  (i)  the  state  of 
business,  (ii)  the  abundance ^  or  scarcity  of  capital, 
(iii)  the  risk^  or  security  of  loans,  and  (iv)  the  strength 
or  weakness  of  men's  motives  to  accumulation.  Rate 
of  interest  and  amount  of  saving  are  not,  however,  in 


174  INTEREST 

exact  correlation.*     Owing  to  the  strong  conservatism 

of  certain  money-lending  classes,  the  actual  market 
minimum,  as  in  case  of  consols,  government  bonds,  and 
bottom  mortgages,  is  lower  than  either  the  gross  or  the 
pure  loan  interest  of  capital.^ 

^  The  slightest  panic  or  insecurity,  caused,  i?.^.,  by  the  rumor  of  a  war, 
though  not  affecting  in  the  least  men's  wish  to  sell  meat,  I)read,  corn,  or 
iron,  will  make  many  unwilling  to  sell  the  services  of  capital.  Every  finan- 
cial crisis  reveals  how  coy  capital  is  at  such  times,  and  also  how  stupid,  care- 
less, and  bold  it  is  at  others. 

-  It  is  the  growth  of  capital  which  causes  the  rate  of  interest  continually 
to  fall  in  all  prosperous  industrial  lands.  Till  1868  12  per  cent,  or,  better, 
I  per  cent  a  month,  was  the  lowest  rate  of  interest  paid  in  San  Francisco. 
In  many  districts  on  the  Pacific  slope,  i]  and  2  per  cent  per  month  were 
not  considered  excessive,  and  througliout  the  Mississip[)i  valley,  except  in 
a  few  of  the  great  business  centres,  the  rates  of  interest  did  not  run  much 
below  these  figures.  At  present,  on  the  average,  interest  west  of  the 
Alleghany  mountains  costs  about  one-half  what  it  cost  in  1868.  The 
security  is  probably  no  Ijctter  now  than  then.  The  likelihood  of  an  ad- 
vance in  the  value  of  the  security  upon  a  mortgage  loan  was  even  better 
then  than  now.  The  change  has  come  simply  because,  in  proportion  to 
the  demand,  there  is  now  a  much  larger  amount  of  available  capital.  In 
London,  while  the  official  rates  of  discount  have,  in  the  last  fifty  years, 
sometimes  averaged  in  twelve  months  considerably  over  6  per  cent,  for 
fifteen  years  past  the  yearly  average  lias  Ijcen  but  once  over  4  per  cent. 
During  1888  a  large  part  of  the  British  debt  was  refunded  at  2]  and  2] 
per  cent.  Early  in  the  20th  century  the  normal  rate  on  loans  in  the  richer 
countries  will  very  likely  not  be  over  2  per  cent,  the  lowest  point  to  which 
Bank  of  England  discounts  have  ever  yet  gone.  On  the  rate  of  int.  in 
Germany  since  1815,  Zeitsch.  f.  Vol/cszoirtsch,  XXII,  iii,  233.  It  is  evident 
that  high  interest  may  or  may  not  betoken  financial  prosperity,  according 
to  cause.  Rise  of  the  rate  in  consequence  of  increase  in  jiroduction  is  a 
favorable  symptom;  if  resulting  from  greater  risk,  the  o])posite.  Con- 
versely, reduction  of  the  rate  may  be  a  bad  sign,  of  stagnation  in  business, 
or  a  good,  indicating  lessened  risk.  Save  in  panic,  abundance  of  capital 
usually  works  low  interest;   paucity,  high. 

'  A  very  influential  condition.  The  low  rate  at  which  Gt.  Britain  and 
the  U.  S.  can  market  bonds,  while  in  part  due  to  plcntifulness  of  capital. 


INTEREST  175 

is  largely  owing  also  to  the  perfect  credit  of  these  governments.  The 
Athenians  at  one  time  allowed  60  per  cent  upon  marine  interest,  while 
on  land  the  rate  was  hut  1 2. 

*  The  rate  will  gu  down  in  proportion  as  accumulation  increases,  but 
accumulation  will   not  go   down   in   proportion  as  the  rate  falls.     Many 
would  save  were  there  no  [loan]  interest  at  all.     Among  the  poor,  in  par 
ticular,  the  precise  rate  has  but  the  slightest  effect  upon  economy. 

''  "  Any  large  lender,  placing  his  risks  judiciously,  and  spreading  them 
somewhat  widely,  is  mathematically  certain  to  realize  a  larger  return  from 
his  capital  through  a  term  of  years,  after  deducting  losses,  than  if  he  had 
invested  in  the  most  approved  securities"  [Walker].  The  long  time  of 
these  investments  is  part  cause  of  this :  also  the  peculiar  ease  of  collection. 
We  may  say  that  in  return  for  these  advantages  lenders  give  back  to  bor- 
rowers a  part  of  the  real  loan  interest.  Elimination  of  the  risk  element 
through  multitude  of  loans  is  the  principle  of  the  English  Investment 
Trusts.     What  is  lost  in  one  investment  is  made  up  in  another. 

§  1 1 1     Inflation  and  Interest 

Rate  of  interest  bears  no  necessary  relation  to  the 
quantity  or  the  value  per  unit  of  the  money  in  circu- 
lation. Hence  an  increase  of  currency  does  not,  in 
and  of  itself,  affect  the  rate  of  interest.^  It  diminishes 
the  power  of  a  dollar  to  buy  commodities,  but  not  to 
hire  its  old  multiple  in  money  of  the  same  kind  with 
itself.  Since,  however,  an  expansion  or  contraction 
of  paper  currency  is  always  an  expansion  or  contraction 
of  credit,  the  effects  of  the  two  are  easily  confounded. 
But  the  effect  of  paper  issues  on  interest  is  not  from 
their  character  as  an  enlargement  of  the  currency, 
but  from  their  character  as  loans.^ 

^  Unless  indirectly,  by  quickening  business  [§  no  (i)]. 

^  In  a  state  of  tense  credit  the  rate  rules  high  because  you  are  not 
absolutely  safe  in  loaning  to  any  one,  the  monetary  unit  being  so  likely  to 
fluctuate  in  value  while  the  indebtedness  is  outstanding.  Thus  during  the 
civil  war  all  stocks  rose  and  fell  with  the  premium  on  gold. 


176  INTEREST 


§  112     Usury  Laws 

Knies,  Der  Credit,  vii.     Bohm-Iia-.verk,  Kapital-,  etc.,  vol.  i,  i-iii.     Perry,  ch.  x. 
Bentham,  On  Usury.     Gamier,  Traite,  722  sqq. 

The  rate  of  interest  determining  itself  naturally, 
usury  laws,  as  distinct  from  leg^al  rates  ^  for  the  settle- 
ment of  old  debts  when  no  rates  were  agreed  upon,  are 
pernicious.  Aiming  especially  to  protect  the  borrower, 
which  is  unjust,  they  in  fact  burden  him  instead,  rais- 
ing the  rate  by  narrowing  supply  ^  and  by  compelling 
borrowers  to  resort  to  indirect  methods.^  Such  legisla- 
tion is  relic  of  a  departed  social  state  or  of  exploded 
economic  ideas.  The  Mosaic  code^  forbade  interest 
because  in  its  time  only  those  in  distress  sought  loans. 
Partly  the  same  fact,  partly  tradition,  led  the  Church 
fathers^  without  exception  to  retain  the  Mosaic  scruple. 
The  Greeks  and  Romans  were  set  against  interest  ^  by 
the  further  thoughts  of  all  wealth  as  consisting  in  gold 
and  silver,  and  of  these  as  'barren.'" 

1  These  are  of  course  appropriate  and  necessary. 

2  The  legal  maximum  is  sure  to  be  too  low.  Hence  many  try  to  use 
their  capital  rather  than  lend.  This  narrows  the  loan  market  immediately. 
It  does  the  same  also  mediately,  by  keej)ing  capital  in  hands  not  the  most 
productive  possible.     Both  effects  raise  the  rate. 

^  One  device  often  resorted  to  to  evade  usury  legislation  is  this :  A 
wishes  to  loan,  and  B  to  borrow,  $1,000  at  10  per  cent  for  a  year  —  amount 
at  the  end  of  the  year,  $1,100.  B  deeds  to  A  a  piece  of  land  or  a  building 
for  Sl.ooo,  at  the  same  time  signing  an  agreement  to  buy  it  back  at  the 
end  of  a  year  for  $1,100.  The  necessity  of  all  this,  and  of  breaking  the 
law,  will  make  such  as  resort  to  these  means  charge  and  pay  high. 

*  Leviticus,  ch.  xxv,  Deuteronomy,  ch.  xv.  But  the  parable  of  the  tal- 
ents, Matthew,  ch.  xxv,  shows  that  Jesus  did  not  share  this  prejudice. 

*  See  Gibbon,  Decline  and  Fall  of  the  Rom.  Empire  [ed.  Milman],  vol. 
V,  314,  where  reference  is  made  to  Barbeyrac,  Moral  dcs  pcres.  The 
medj.'cval  theologians  were  fond  of  using  against  the  legitimacy  of  interest 


INTEREST  177 

the  words  of  Jesus,  Luke  vi,  35,  which  read  in  the  Vulgate,  mulutim  date 
nihil  inde  sperantes. 

^  Yet  the  theoretical  opposition  did  not  keep  the  institution  from  being 
legalized.  The  legal  rate  at  Athens  when  the  Roman  conquest  began  was 
18  per  cent.  Cf.  §  no,  n.  3.  The  Twelve  Tables  of  Roman  law  made  it 
10  per  cent  for  twelve  months,  viz.,  8 J  per  cent,  or  an  uncia  to  every  as, 
per  year  of  10  months.  The  latter  was  then  the  fiscal  year,  though  the 
Romans  were  already  beginning  to  employ  the  12  months  year  along  with 
the  10  months  or  lunar  year.  At  Babylon,  in  the  6th  century  B.C.,  interest 
ranged  from  13  to  20  per  cent,  paid  monthly.  Here  only  the  lunar  year 
was  used. 

'  Shakespeare,  too,  calls  interest  the  posterity  of  a  sterile  metal. 


CHAPTER    IV 

WAGES 

§  1 13     Definition 

H'a/Jter,  Wages  [cf.  his  P.  E.,  pt.  iv,  ch.  v].  Sidg^uick,  bk.  ii,  ch.  viii;  also  in  Fort- 
nightly Rev.,  Sept.  I,  1879.  dark, '  Possib.  of  a  Sci.  Law  of  Wages,'  Am.  Ec.  Ass'n 
Papers,  vol.  iv.  lyood,  '  Theo.  of  Wages,'  ibid.;  also  in  Quar.  Jour.  Econ.,  vol.  iii, 
60  sqq.  l^ebb,  as  at  §  100.  Mangoldt,  §§  109  sqq.  Thornton,  in  XlXth  Cent., 
Aug.,  1879. 

•Wages'  means  here  (i)  pure  wages  as  distinguished 
from  gross,  viz.,  the  mere  reward  for  common  labor, 
excluding  all  high  salaries  ami  fees,  and  also  all  forms 
of  remuneration  under  the  name  of  wages  so  far  as 
earned  by  special  talent,  education  or  training,^  (ii) 
real  wages,  which  may  in  any  case  vary  greatly  from 
nominal  through  differences  in  the  value  of  money  and 
in  the  regularity,  safety,  and  healthfulness  of  work,  also 
through  extras  given  or  allowed  to  be  earned.^  We 
seek,  chiefly,  the  laws  of  general  wages,  deferring  the 
reasons  for  the  different  levels  of  wages  within  any 
group  of  competitors,  to  the  end  of  the  Chapter. 

1  Though  we  may  stop  short  of  Leroy-Beaulieu's  avowal  that  "  the  whole 
theory  of  wages  must  be  rebuilt,"  little,  certainly  of  the  older  teaching  on 
the  subject  can  be  accepted  without  sifting.  New  definitions  are  especially 
needed.  Rewards  earned  by  peculiar  talent  are  profits  [sec  next  Chapter] ; 
those  bestowed  in  consequence  of  education  and  training  are  interest  on 
intellectual  capital  [§  98.  Cf.  Crehore,  Quar.  Jour.  Econ.,  vol.  ii,  361]. 
That  the  several  elements  all  go  by  the  name  of  wages  is  unfortunate,  yet 
no  nomenclature  could  avert  the  necessity  for  care  in  the  mental  analysis 
of  the  case,  as  the  elements  of  gross  wages  are  themselves  to  a  great  extent 
inseparable  in  fact.     But  gross  and  nominal  wages  do  not  usually  so  vary 


WAGES  1 79 

from  pure  and  real  as  Id  rtmlcr  reasonings  about  the  one  kind  wholly 
misleading  in  respect  to  tlie  otiier. 

2  Walker,  P.  K.,  260  sq.     A  common  instance  is  the  custom  in  stores, 
of  letting  the  clerks  have  goods  at  wholesale  prices. 


§  114     Cause  and  Source 

IValker,  as  at  §  113  [his  '  Wages'  is  devoted  to  the  demonstration  of  the  view  we  present 
on  this  point].  H.  George,  Prog,  and  Poverty,  bk.  iii,  ch.  vi.  Fawcett,  Manual, 
bk.  ii,  ch.  iv.  Cairiies,  Leading  Principles,  pt.  ii,  ch.  i.  Sumner,  in  Princeton 
Rev.,  Nov.,  1887  [also  in  his  Essays,  in  Pol.  and  Soc.  Sci.].  Beauregard,  Theo. 
du  Salaire.  Levasseur,  do.,  Jour,  des  Econ.,  Jan.,  1888.  Sic Doiinell.,  Hist,  and 
Criticism  of  Theories  of  W.iges  [prize  essay,  Dublin,  1887].  Marx,  Capital.  Mar- 
shall, Econ.  of  Industry,  bk.  ii,  chaps,  vi,  vii,  viii,  xi  [cf.  Quar.  Jour.  Econ.,  vol.  ii, 
218  sqq.].  Roscher,  bk.  iii,  ch.  iii.  Jevons,  Theo.  of  P.  E.,  ist  ed.,  256  sqq.;  2d 
ed.,  289  sqq.     Thornton.,  Labour. 

The  efficient  cause  ^  of  wages  is  the  labor  from  which 
they  spring,  a  truth  clearly  apparent  from  a  glance  at 
primitive  industry,  and  in  no  wise  altered  by  the  com- 
plex conditions  which  arise  later.  P^qually  manifest  is 
it  that  the  source  ^  of  wages  is  the  product  created  by 
the  same  labor.  This  theory,  now  well-nigh  universally 
accepted,  opposes  that  of  Fawcett  and  Cairnes,  which 
speaks  of  a  fast  and  rigid  *  wage-fund,'  ^  existing  at  any 
given  moment,  made  up  of  capital  already  produced, 
from  which  fund  wages  for  the  next  ensuing  period 
must  be  paid,  so  that,  until  there  has  been,  through 
new  production,  a  new  accession  to  capital  and  the 
wage-fund,  wages  must  depend  absolutely  and  only  upon 
the  greater  or  less  competition  among  the  laborers, 
arising  from  their  numbers. 

1  Bearing  in  mind  the  definitions  of  §§  98  and  113. 

2  On  this,  H.  George,  as  above,  is  best.  Cf.  Rae,  Contemp.  Socialism, 
332.  Cairnes,  too,  forgetting  himself,  well  says.  Leading  Prin.,  58,  that 
"  industrial  rewards  consist  for  each  i^roducer,  or,  more  properly,  for  each 
group  of  producers,  employed  on  a  given  work,  in  the  value  of  the  com- 
modities which    result   from   their  exertions."     "  Freight   the   mother  of 


l80  WAGES 

wages"  [i.e.,  no  freight,  no  wages  for  sailors]  is  an  old  maxim  of  admiralty 
law  [Prog,  and  Pov.,  50]. 

8  See  Laughlin,  ed.  of  Mill,  178  sqq.,  Cairnes,  as  above  [the  ablest 
presentation  of  the  old  view].  Walker,  "Wage-fund,"  in  Lalor,  vol.  iii, 
Mill,  bk.  ii,  chaps,  xi-xiii.  Fortnightly,  May,  i86y  [where  Mill  repudiates 
the  old  doctrine,  taught  in  his  Principles],  Mill  was  led  to  this  by  Longe's 
pamphlet,  1866,  A  Refutation  of  the  Wage-fund  Theo.  of  Modern  P.  E. 
Cliffe  Leslie  wrote,  agreeing  with  Longe,  in  Fraser's  Mag.,  July,  1868. 
Endless  has  been  the  discussion  since,  not  all  of  it  sober.  If  the  wage- 
periods  be  considered  very  brief,  and  the  reckoning  carried  over  con- 
siderable time,  the  two  theories  would  not  differ  in  practical  effect,  since 
by  both  product  would  avail  for  the  sustenance  of  lal^or  at  once  after  it 
was  amassed.  The  wage-fund  belief  has  wrought  mischief  in  disseminating 
the  false  impressions  that  contract  wages  are  the  only  wages,  and  that  wage- 
earners  are  totally  dependent  on  capitalists.  But  the  new  and  better  doc- 
trine, while  correcting  these  errors,  leads  many  to  the  equally  great  mistake 
of  supposing  the  portion  of  the  proceeds  of  industry  which  can  issue  in 
wages  to  be  naturally  unlimited,  so  that,  if  wages  are  low,  capitalists  or 
the  state  must  be  to  blame  [cf.  119].  Further,  (i)  so  far  as  wages  are 
advanced,  which  is  not  common,  they  must  he  taken  from  capital,  not 
from  product,  (ii)  the  amount  of  wages  promised  in  any  given  bargain  is 
according  to  prospect  of  production,  and  (iii)  the  total  of  wages  realized 
on  the  whole  and  in  the  long  run  is  as  the  amount  of  production. 


§  1 1 5     Developed  Wages 

Ad.  Smith,  bk.  i,  ch.  vi;  bk.  ii,  ch.  i.    //.  George,  as  at  §  114.     Clark,  Pol.  Sci.  Quar., 
vol.  ii,  605.     Sax,  Theoretische  Staatswirtsch.,  230,  n.,  §§  39,  40. 

As  industry  advances  it  leans  more  and  more  on 
capital,  which  not  all  possess.  Moreover,  not  only  are 
the  preci.se  .sliares  due  to  each  man  often  no  longer 
discoverable,  but  the  product  is  usually  not  divisible  ^ 
so  early  or  often  as  the  needs  of  workmen  require. 
Those  lacking  capital  therefore  covenant  with  capitalists 
to  .sell  them  their  wages,  in  the  proper  sense,  for  certain 
supplies  to  be  paid  at  convenient  intervals,  so  origi- 
nating the  wage  system  as  now  familiar.     The  wages 


WAGES  1 81 

proper  we  may  term  '  iiouineiial  -  wages,'  as  distin- 
guished from  the  'visible  wages'  actually  received. 
Observe  that  modern  wages  are  as  natural  in  their  time 
as  primitive  wages  were  earlier. 

'  In  a  cotton  factory,  for  instance,  each  weaver's  true  wage  for  a  given 
day's  work  is  at  the  end  of  that  day  stored  up  in  the  web  of  cloth  woven 
during  the  day.  To  save  breaking  bulk,  the  owner  of  the  establishment 
liitvs  the  weaver's  true  wage,  giving  him  money  down.  With  many  writers 
this  transaction  seems  to  be  the  beginning  and  the  end  of  the  wages- 
phenomenon.  But  wages  take  other  forms  than  that  of  contract  wages. 
Work  in  mills  is  not  the  sole  kind  of  industry. 

2  The  word  is  borrowed  from  Kant's  philosophy,  and  means  that  which 
is  real  to  thought  though  not  to  our  senses. 

§  116    The  General  Rate  of  Gross  Wages 

Ricardo,  Prin.  of  P.  E.  and  Taxation,  ch.  v.     Clark,  as  at  §  113.     Webb,  as  at  §  100. 
Cherbuliez,  bk.  iii,  ch.  iii,  sec.  2. 

Competition  pervades  the  entire  wage-earning  world, 
yet  not  at  all  equably,  but  in  tracts  or  groups  of  high 
pressure,  separated  by  ridges  of  low.^  Why,  in  the 
world,  a  nation,  or  a  group,  does  the  wages  class  as  a 
whole  divide  the  joint  social  income  on  such  and  such 
terms  with  landlords,  capitalists  and  undertakers? 
To  this  most  difficult  question  different  writers  give 
the  following  several  answers  :  i  That  the  winnings  of 
the  laboring  population  tend  to  conform  to  the  returns 
secured  by  such  un.skilled  workmen  as  employ  no-rent 
lands  or  no-interest  capital.-  ii  That  'the  natural 
price  of  labor  is  that  price  which  is  necessary  to  enable 
the  laborers  one  w-ith  another  to  subsist  and  to  per- 
petuate their  race  without  increase  or  diminution,' 
according  to  the  standard  of  comfort  prevalent  among 
them  at  the  given  place  and  time.^ 


1 82  WAGES 

1  Cf.  §  66  and  notes. 

2  Tend  to  conform,  that  is,  to  bare  -wages,  in  the  strict  sense  [§  113]. 
The  view  counts  all  gains,  in  any  cases,  beyond  those  gotten  by  such 
unassisted  labor,  as  interest  or  profits  [§§  loi,  113,  n.  i]. 

3  Ricardo,  as  above.  This  is  what  Lassalle  named  Ricardo's  '  iron 
law.'  In  fact  it  is  neither  iron,  as  the  modifications  show,  nor  Ricardo's. 
It  originated  with  Turgot.  He  said:  "In  each  species  of  labor  it  must 
come  to  this,  that  wages  limit  themselves  to  what  is  necessary  for  the  sup- 
port and  reproduction  of  the  laborer."  But  he  insisted  that  this  natural 
price  of  labor  is  in  no  wise  fixed  but  varies  greatly  at  different  times  in  one 
country  and  more  greatly  still  in  different  lands.  The  principle  is  that  if 
the  ignorant  poor  find  themselves  at  any  time  unusually  prosperous,  they 
multiply  till  competition  has  destroyed  the  advantage.  P^awcett,  Manual, 
234,  declares  that  in  the  English  agricultural  districts  wages  fluctuate 
regularlv  with  the  price  of  wheat.  This  phenomenon  Ricardo  generalized 
somewhat  too  hastily,  as  if,  which  he  after  all  denies  rather  than  asserts, 
extra  prosperity  on  the  part  of  the  poor  absolutely  could  not  be  permanent. 
Cf.  §  118.  For  H.  George's  interp.  of  Ricardo  on  wages,  Social  Problems, 
201. 

§  117     The  Residual  Claimant  Theory 

U^alker,  Wages,  pt.  ii;  P.  E.,  pi.  iv,  ch.  v.  Atkinson,  The  Distribution  of  Products; 
The  Margin  of  Profit.  Chevallier,  Les  Salaires  an  XlXieme  Steele.  Gtffen, 
Progress  of  the  Working  Classes. 

iii  That  the  laws  of  rent,  interest,  and  profits  are  at 
the  same  time  laws  of  wages,  wages  consisting  always 
in  the  total  product  of  industry,  minus  what  the  opera- 
tion of  these  laws  apportions  to  landlord,  capitalist  and 
undertaker.  According  to  this  view,  among  the  three 
divisions  of  social  income  which  arise  through  economic 
merit,  pure  profits  and  interest  constantly  decrease, 
while  wages  increase,  the  wages  class,  not  landlords, 
undertakers,  or  capitalists,  being  the  residual  claimant.^ 
That  this  advantage  shows  so  slight  effect  upon  actual 
wage  rates,  is  laid  to  (i)  the  increase  of  laborers  in 
numbers,  and  (ii)  the  anomalous  and  partly  illicit  gains 
concealed  in  gross  profits. 


WAGES  183 

1  We  do  not  accept  this  view.  Kven  the  considerations  at  the  end  of 
the  §  do  not  bring  it  into  accord  with  facts.  Wages,  both  per  capita  and 
as  a  total  [the  one  does  nut  necessarily  involve  the  other],  are  indeed 
increasing,  as  Chevallier  and  Giffen  show,  though  the  advance  cannot  be 
shown  to  keep  pace  with  that  in  the  means  of  production.  The  cause  of  the 
increase,  however,  we  believe  not  to  lie  in  any  laws  naturally  limiting  the 
other  shares,  but  in  such  elevation,  new  self-respect,  and  new  demands  on 
the  part  of  laborers,  and  such  higher  regard  for  them  on  the  part  of  the 
public,  as  recent  decades  have  developed  [§  118,  and  n.  i].  In  proclaim^ 
mg  a  natural  limitation  to  the  shares  other  than  wages,  writers  are  too  apt 
to  reckon  interest  by  the  mere  rates  of  loans,  and  profits  l)y  mere  statistics, 
forgetting,  meanwhile,  both  monopoly  gains  and  the  steady  growth  of 
rents.     On  this,  Hertzka,  Soc.  Entwickelung,  bk.  i,  chaps,  xi,  xii. 


§  1 18     The  Truth 

Giddings,  '  Natural   Rate  of  Wages,'  in    Mod.   Dist.   Process.     Gunton,  Wealth  and 
Progress.     Patten,  in  Am.  Ec.  Ass'n  Papers,  vol.  iii,  406  sqq. 

We  take  Kicardo's  law,  rightly  understood  and  de- 
veloped, as  true,  special  emphasis  being  laid  on  the  last 
part  of  it,  which  is  usually  ignored.  In  one  direction, 
wages  must  sustain  life,  or  work  ceases.  In  the  other, 
whatever  the  competition  between  employers,  the  figure 
will,  up  to  the  point  where  higher  wages  would  begin 
to  discourage  undertakings,  be  fixed  by  the  laborers' 
standard  of  life,  their  sense  of  what  they  must  have. 
If  too  high  wages  are  demanded,  undertakers  will  quit 
business :  if  too  low  are  allowed,  laborers  will  die. 
Enforced  poverty,  or  any  other  cause  breaking  wage- 
winners'  spirit,  lowers  wages ;  all  that  gives  them 
pride,  ambition,  and  courage,  elevates  wages. ^  Two 
things  are  to  be  carefully  noted,  however,  i  After  all, 
contrary  to  common  opinion,  the  portion  of  the  pro- 
ceeds of  industry  which  can  during  any  limited  period 
issue  in  Avages  is,  to  a  great  extent,  not  arbitrary  but 


184  WAGES 

fixed,-  and  fixed  by  the  amount  of  capital  available  for 
supporting  labor,  ii  No  automatic  action,  prompted 
by  motives  of  self-interest,  will  heal  the  evil  of  degrada- 
tion in  the  laboring  population.^  Hence  the  value  (i)  of 
a  imblic  opinion  in  sympathy  with  labor,  (ii)  of  labor 
agitation,  if  at  once  well  planned,  temperate,  and  reso- 
lute, and  (iii)  of  education  wisely  to  devise,  and  moral 
character  to  make  possible,  united  action.* 

^  Nor  need  this  impoverish  any  one.  Employers,  to  meet  the  demand, 
are  forced  to  new  economies  and  invention,  which  may  even  have  the 
effect  of  increasing  the  total  production.  Gunton,  as  above,  has  well 
wrought  out  the  idea.  Touching  the  possibility  of  a  sweeping  benefit  to 
wage-earners  in  this  way  he  is  probably  too  sanguine,  but  within  con- 
siderably large  limits  his  thought  is  correct  [§  117,  n.  i]. 

-  So  Walker,  Wages,  410.  Wages  are  in  some  sense  fixed,  though  not 
in  the  manner  supposed  by  the  wage-fund  conception  [§  114].  The  sup- 
ply of  capital  influences  them,  but  through  its  effect  upon  the  productive- 
ness of  the  labor.  Many  who  here  agree  with  Walker  too  nearly  overlook 
this.     H.  George  does,  yet  see  Prog,  and  Pov.,  62. 

'  See  the  noble  discussion  in  Walker,  Wages,  chaps,  xvi-xix.  See  also 
W.'s  Address,  in  Am.  Ec.  Ass'n  Papers,  vol.  iii,  157  sqq.  Upon  this  point 
many  earlier  writers  of  repute  held  notions  that  experience  has  j^roved 
wholly  false.     Walker  fiuotes  some  of  these. 

*  We  agree  with  Patten,  as  above,  that  a  general  advance  in  the  incomes 
of  laborers  is  not  the  necessary  consequence  of  enlarged  social  production. 
It  presupposes  moral  elevation,  and  must  be  a  slow  process  at  best.  The 
ready  optimism  which  studies  the  vast  industrial  progress  of  our  time, 
assuming  it  "  as  an  axiom  that  all  the  lienefits  of  this  j)rogress  pass  quickly 
into  the  possession  of  the  laboring  masses,"  seems  to  us  as  mistaken  as  it 
certainly  is  honorable  to  the  impulses  of  its  subjects. 


§  119    Concluding  Points 

Ad.  Smith,  \>V.  i,  ch.  x.     Yves  Guyot,  Set.  Econontique,  bk.  iii,  ch.  iv. 

I    In  spite  of  their  tendency  to  equality  through  the 
action  of  supply  and  demand,  wages  within  any  tract 


WAGES  185 

of  competition  differ  in  the  different  employments, 
accordinj;  as  these  are  or  are  not  (i)  ajfrecable,  (ii) 
always  deinaiidiii^  labor,  (iii)  dependent  on  high  orig'- 
iiial  gifts,  (iv)  easy  to  learn,  (v)  reputable,  (vi)  respon- 
sible, (vii)  trammelled  by  restrictive  laws  or  customs.^ 
II  The  amount  paid  for  wages  varies  greatly,  according 
to  the  nature  of  the  business,  in  the  proportion  it  bears 
to  the  value  of  fixed  capital  and  in  the  proportion  it 
bears  to  that  of  circulating.  Fixed  capital  increases 
with  the  advance  of  civilization,  out  of  proportion  to 
both  wages  and  circulating  capital.  Ill  Popular  errors, 
total  or  partial,  are  (i)  that  good  trade  makes  high 
wages,  (ii)  that  bigb  prices  have  the  same  effect,  and 
(iii)  that  wages  must  needs  vary  with  the  price  of  food. 

^  This  influence  sometimes  raises  wages  above  their  proper  level,  some- 
times has  the  reverse  effect.  The  latter  is  many  times  the  case  with 
women's  wages,  which  are  often,  though  less  and  less  so  at  present,  lower 
than  men's  fur  the  same  amount  and  quality  of  work.  Stated  fees,  too, 
tend  to  go  unchanged  through  long  periods,  being  fixed  by  custom. 


CHAPTER   V 

PROFITS 

§  I 20    Terminology 

Clark  and  Giddings,  Modern  Distrib.  Process.  Mataja,  Unternehmergenvitin. 
Wirntinghaus,  Das  Unternehmen.  Gross,  Lehre  voin  Unterttehiiiergewinn. 
Schroeder,  Unternehvien  Jtnd  Unternehmergetvinn. 

All  economic  writers  now  agree  in  distinguishing 
profits  from  iiiterest,^  but  another  question  still  divides 
them,  viz.,  whether,  of  the  two  elements  making  up 
gro.ss  profits,  the  essence  of  profits  consists  in  (i)  re- 
ward for  the  exercise  of  some  peculiar  natural  ability, 
or  rather  in  (ii)  risk^  and  the  accompanying  haphazard 
and  anomalous  g-ains,"^  analogous  with  those  of  specula- 
tion. We  prefer  nomenclature  (i),  taking  pure  profits, 
or  profits  proper,  as  the  remuneration  of  special  origi- 
nal *  talent  exercised  in  any  industrial  direction.  Profits 
manifest  themselves  most  obtrusively  in  connection  with 
the  managrement  of  business,  yet  form  an  immense  ele- 
ment in  the  sums  nominally  paid  as  salaries,  fees,  and 
wages. 

^  Ad.  Smith,  Ricardo,  Mill,  and  Fawcett  treat  lioth  under  the  one  name 
of  '  profits,' hopelessly  confusing  many  imptjrtant  questions.  See,  for  this, 
Mill's  4th  Essay  on  Some  Unsettled  Problems  in  P.  E.  On  Graziani's 
theory  of  profits,  see  in  your,  ties  Econ.,  Oct.,  1887. 

2  Risk  cannot,  as  is  so  often  thought,  be  the  reason  of  profits.  The 
risk  of  a  business  by  no  means  falls,  as  a  rule,  entirely  upon  its  manager. 
When  authors  so  represent,  they  must  have  in  mind  the  legal  responsi- 
bility—  a  very  different  thing.  The  latter  often  protects  the  lai)orers,  more 
often  it  docs  not,  according  to  the  manager's  resources. 


PROFITS  187 

'  Monopoly  profits,  ^conjuncture  winnings  [as  the  German  economists 
express  it],  mere  good  luclc  in  business,  etc.  Cf.  Progress  and  Poverty, 
172  sqt].  J.  B.  Clark  cuts  the  uiulcrtaker  function  into"  two  parts,  the 
industrial  and  the  mercantile.  The  returns  for  management  he  likens  to 
wages,  the  rest,  gain  which  arises  from  selling  the  product  at  more  than 
its  ingredients  —  ordinary  wages,  wages  of  direction,  capital,  ta.\es,  etc.  — 
have  cost,  he  calls  pure  profits.  But,  as  a  rule,  it  is  precisely  the  manage- 
ment which  enables  the  gain  t(;  be  made  on  sales.  This  gain,  unless  in 
case  of  some  monopoly  or  peculiar  feature  removing  the  operation  from 
the  sphere  of  profits  anyway,  is  brought  about  solely  by  better  management 
than  the  poorest  which  still  continues.  It  is  reward  to  management. 
How  else  can  such  reward  appear?  Does  not  the  gain  of  merchants  come 
by  managing  wisely? 

*  Acquired  business  ability  is  of  course  capital,  and  its  remuneration 
interest  [§§  98,  108].  This,  in  the  case  of  a  prolit-taker,  would  form  a 
second  element  in  gross  profits,  along  with  that  suggested  under  (ii)  in 
the  text,  above. 

§  121     Undertakers'  Profits 

lyaiker.  Wages,  ch.  xiv;  P.  E.,  pt.  iv,  ch.  iv.     Cherbitliez,  bk.  iii,  ch.  iv.     Mangoldt, 
§§  96  sqq. 

The  undertaker,^  as  capitalizer  or  ii.ser  of  capital,  ful- 
filling an  entirely  different  office  from  that  of  the  mere 
lender  of  capital,  prolit.s,  the  undertaker's  share  in  the 
product,  are  governed  by  a  law  analogous  with  rent.^ 
Power  to  organize  industry  and  apply  it  to  capital 
varies  with  different  undertakers,  as  fertility  of  land 
with  districts.  By  the  law  of  dearest  cost  of  produc- 
tion, the  prices  of  manufactures,  for  instance,  are  fixed 
by  the  cost  of  the  poorest  undertaker-talent  which  de- 
mand forces  into  employment.  This  is  no-profit  under- 
taking. The  returns  of  all  superior  undertakers  are 
their  profits,  varying  mainly  with  ability,  partly  with 
opportunity.^ 

1  On  the  use  and  meaning  of  this  term,  §  46,  n.  i.  In  the  economic 
writings  of  Franklin  and  Alexander  Hamilton  it  frequently  occurs  in  just 


1 88  PROFITS 

this  sense.  An  early  minute  of  the  trustees  of  Brown  University  authorizes 
the  faculty  to  negotiate  with  some  '  undertaker '  for  gowns  to  lie  worn  by 
speakers  at  commencement.  The  real  undertaker  is  often  a  composite 
body  [§§  46,  iv;  99,  n.  3]. 

•  But  beware  of  following  the  analog)'  too  far.  There  is  a  scarcity  of 
land  relatively  to  need,  and  there  is  a  scarcity  of  undertaker-ability  rela- 
tively to  need.  But  while  competition  for  pieces  of  land  can  never  so 
increase  the  productiveness  of  the  best  as  to  throw  the  jjoorer  out  of  use, 
but  rather  poorer  and  poorer  have  to  be  occupied  with  the  lapse  of  gen- 
erations, competition  cultivates  undertaker-talent  to  an  ever  more  and 
more  perfect  condition,  so  that  jioorer  undertakers  are  thrust  from  the 
field.  Degrees  oi  fertility  in  the  land  used  go  on  multiplying :  degrees  of 
talent  in  management  go  on  decreasing.  [Cf.  Clark,  Pol.  Sci.  Quar.,  vol. 
ii,  610.] 

8  Of  course,  so  far  as  the  fortunate  opportunity  is  thing  of  chance,  of 
fraud,  or  of  partial  legislation,  the  profit  is  gross,  not  pure.  Cf.  §  117. 
Income  of  this  sort  might  be  rent,  or  belong  in  the  fifth  category  [§§  102, 
103].  Hugo  Bilgram  finds  the  essence  of  profits  to  consist  simply  in  the 
unfair  advantage  afforded  by  the  ownership  of  money,  the  moneyless  man 
being  at  'the  margin  of  opportunity,'  etc.  [for  liilgram  too  carries  out  the 
rent  analogy].  But  the  gainful  chance  in  trade  may  be  created  by  natural 
ability  functioning  in  purely  economic  ways,  in  which  case  the  gain  is  pure 
profits.  The  theory  of  profits  here  set  forth  was  first  sketched  by  Piagehot, 
and  then  elaborated  by  Walker.  It  is  now,  in  essence,  the  prevalent  one. 
Ingram,  Hist,  of  P.  E.,  however,  conceives  it  to  be  yet  on  trial.  For  good 
remarks  on  it,  Hadley,  1st  Rep.  of  Conn.  Bureau  of  Lab.  Stat.,  esp.  p.  21. 


§  122     Undertaker-Talents 

Clark,  '  Profits  under  Modern  Conditions';   Pol.  Sci.  Quar.,  vol.  ii. 

The  reason.s  for  certain  undertakers'  superiority  over 
others  are  many  in  both  number  and  kind.  Force 
of  will  and  strength  of  mind  are  naturally  the  main 
determinants.  All  turns  sometimes  upon  a  cool,  phleg- 
matic temperament,  sometimes  upon  courage  or  cheer- 
fulness. A  gift  for  administration  in  general  may 
tell  the  story,  or,  in  particular,  the  power  to  manage 


PROFITS  189 

men.  So  may  eoonoiuy,  thrift,  attention  to  business, 
memory,  quickness  at  lij;ures,  accuracy,  the  ability 
to  hold  in  mind  many  details  at  once.  In  not  a  few 
cases  good  healtli  ^  or  a  rugged  constitution  will  be  the 
decisive  characteristic. 

'  M.  de  Lesseps  is  able,  it  is  said,  to  go  days  without  sleep,  and  then, 
when  opportunity  offers,  to  make  up  by  sleeping  all  day  long,  in  a  railway 
carriage  if  need  be.  Let  pupils  suggest  as  many  other  causes  of  profits  as 
they  can  besides  the  above. 

§  123     Profits,  Prices,  Wages 

Theauthh.  at  §§117,  118. 

Pure  profits,  consisting  wholly  of  wealth  created  by 
the  powers  of  given  undertakers  over  and  above  what 
would  have  been  produced  by  the  same  application  of 
labor  and  capital  under  less  efficient  leadership  or  man- 
agement, neither  (i)  enter  into  the  prices  of  products, 
nor  (ii)  lower  or  anywise  antagonize  wages.^  On  the 
contrary,  wise  and  energetic  undertaking  is  absolutely 
vital  to  the  increase  of  wealth. ^  Anger  at  the  great 
captains  of  industry  on  account  of  the  pure  profits 
which  they  acquire  is  not  only  groundless  but  insane. 
Rather  is  it  the  stupid  and  unsuccessful  undertakers 
who  deserve  blame,  sinking  capital,  starving  laborers. 
The  signal  importance  and  unicjue  character  of  the 
undertaker-function  account  for  the  present  and  proba- 
ble limitation  of  co-operation. 

1  Gross  profits  may  of  course  include  illegal  and  immoral  gains,  to  the 
injury  of  laborers  as  well  as  of  others. 

2  As  well,  remarks  Hagehot,  speak  of  the  compositors  as  'making'  the 
London  Times  as  of  laborers  in  the  ordinary  sense  being  the  sole  creators 
of  wealtli. 


Part   V 


CONSUMPTION 


-<«J>»io°- 


CHAPTER    I 

NEED 

§  124     To  Resume 

Mangoldt,  bk.  v.  Chapin's  Wayland,  ch.  x.  Gamier,  Traite,  ch.  xxxiv.  Patten, 
'The  Consumption  of  Wealth'  [Univ.  of  Pa.  Pubb.,  P.  E.  and  Pub.  Law  Ser.,  No.  4]. 
Lexis,  in  Schoenberg,  vol.  i,  XII. 

The  general  nature  of  consumption  was  presented 
in  §49,  where  the  subject  received  consideration  so  far 
as  we  found  it  to  be  a  phase  of  production.  Unpro- 
ductive consumption,  or  consumption  as  an  indepen- 
dent department  of  Economics,  is  now  to  be  studied. 
Since  man  produces  to  live  instead  of  Hving  to  pro- 
duce, unproductive  consumption  is  the  ultimate  end^ 
of  all  wealth  and  hence  of  all  production.  Our 
economic  efforts  have  their  entire  occasion  and  their 
essential  explanation  in  the  needs  ^  of  human  beings. 
These  may  be  (i)  corporeal  or  mental,  (ii)  original  or 
acquired,  (iii)  legitimate  or  illegitimate. 

1  But  we  do  not  agree  with  the  authors  who  regard  this  fact  a  sufficient 
reason  for  treating  Consumption  licforc  Production.     A  canvass  of  man's 


NEED  191 

needs  would  certainly  not  be  inappropriate  in  an  introduction  to  Economics, 
hut  consumption  is  not  confined  to  a  study  of  needs. 

-  It  is  a  remark  of  the  Italian  economist,  Fuoco,  that  man,  "  however 
great  he  may  he,  is  nothing  hut  a  living  nee  J,  a  sum  of  needs"  \_tulto  quanto 
i  piio  chiamarsi  un  bisogno  vivente,  una  somma  di  bisogni\ 


§  125     Elasticity  of  Need 

Mangoldt,  197  sq.  Patten,  as  at  §  124.  Cf.,  above,  §  62  and  the  authli.  there  named. 
Clark,  I'hilos.  of  Wealth,  ch.  iii.  Lexis  [as  at  §  124],  §  4.  F.  A.  Lange,  Arieiter- 
/rage  [4th  ed.],  164  sqq. 

Consumption  increases  and  decreases  with  plenty, 
but  very  unsyninietrically.  Although  each  depart- 
ment of  tlie  things  which  we  desire  is  susceptible  of 
great  expansion,  the  food  requirement  has  less  latitude 
than  that  for  clothing,  this  less  than  that  for  shelter. 
Kinds  of  food  vary  in  the  same  respect.  Any  man's  use 
of  salt  nothing  could  much  extend,  but  new  cheapness 
would  greatly  multiply  veg-etable  dishes,  and  meats, 
spices,  and  drinks  more  still.  In  dress,  each  season, 
each  change  of  temperature,  and  almost  every  occa- 
sion demands  of  such  as  can  afford  it  some  modifica- 
tion. Dwelling  accommodations  vary  from  wigwam 
to  palace,  while  our  demand  for  immaterial  goods  has 
a  truly  infin-ite  range.  Liking  for  variety  develops 
most  rapidly  in  food,  next  in  dress,  next  in  the  appur- 
tenances of  home,  last  in  the  intellectual  and  spiritual 
realm.  Retrenchment  follows  in  general  an  order  the 
reverse  of  the  above,  but  with  modifications  largely 
determined  by  pride  ^  and  habit. 

1  The  limitation  of  outlay  is  nearly  sure  to  begin  at  points  where  it  will 
be  least  noticed,  since  people  do  not  love  to  advertise  their  poverty. 
Usually,  therefore,  economy  will  strike  food  before  lodging,  bringing  one 


192  NEED 

to  dispense  with  meat,  e.^.,  in  favor  of  vegetables,  and  so  on.  This,  in  fact, 
when  sucli  partial  luxuries  as  tea,  cotYec,  aiul  tobacco  have  not  yet  been 
given  up,  since  habit  powerfully  co-operates  with  pride  for  the  retention  of 
these.  Retrenchment  in  clothing  comes  last,  —  in  the  outer  garments  last 
of  all.  The  possible  .cu'dV/  of  retrenchment  is  greatest  in  housing,  the 
whole  of  which  may  be  surrendered,  next  most  complete  in  clothing,  a  part 
of  which,  in  temperate  climates,  must  be  retained,  least  complete  in  food 
[§  62,  u.  2,  also  Mangoldt,  as  above]. 


§  126     Fashion  and  Progress 

Roscher,  §  89,  n.  i.      ratten,  as  at  §  124. 

Presupposing  considerable  resources  on  the  part 
of  consumers,  the  direction  assumed  by  consumption 
varies  enormously  with  class  and  station  in  Hfe,  cus- 
tom, whim,  and  accident.^  As  a  rule,  the  poorer  a 
family  is,  the  greater  the  proportion  of  its  total  in- 
come which  it  expends  for  food.^  Changes  in  taste 
render  millions'  worth  of  goods  unmerchantable  each 
year.  In  food  the  prime  delicacies  of  one  season  may 
have  no  sale  the  next.  The  office  cf  sugar  at  present 
was  once  fulfilled  by  honey.  The  middle  age  used 
enormous  stores  of  wax,  the  head  church  of  Witten- 
berg requiring,  just  before  the  Reformation,  35,000 
pounds  a  year.  In  Catholic  lands  the  consumption  of 
fish  noticeably  varies  with  diligence  in  the  observance 
of  fasts.  The  growth  of  civilization  and  culture 
brings  with  it  increasing  refinement  of  needs,  and  a 
steady  advance  from  coarser  to  nicer  in  the  things 
which  men  con.sume. 

'  There  are  three  ways  in  which  wealth  may  cease  to  be  such  [cf  §  19], 
viz.,  change  in  (i)  the  objects  constituting  it,  (ii)  the  subjects  possessing  it, 
or  (iii)  the  relations  between  subjects  and  objects.     Consumi)ti<)n  in  tlie 


NEED  193 

narrowest  sense  comes  under  (i^.  We  liave  a  case  of  (ii)  whenever  change 
in  need  leads  to  tlie  casting  aside  of  articles  previously  valuable,  and  of 
(iii)  when  war,  revolution,  or  other  cause  renders  possessions  insecure 
[Mangoldt,  §  134]. 

2  The  so-called  'l^ngel's  law,'  On  this,  and  the  numerous  studies  besides 
Engel's  of  the  same  pnililem.  Lexis  [as  in  §  124],  §§  21  sq<].,  and  notes  — 
very  valuable.  It  may  be  regarded  as  a  counterpart  of  this  law  that  a  man 
pays  for  house  rent  a  smaller  proportion  of  his  income  the  larger  his  income 
is.  It  has  been  ascertained  that  in  Breslau,  Germany,  a  family  with  a 
yearly  income  of  from  ^300  to  $iocx)  pays  about  l  of  it  for  dwelling  accom- 
modations, one  getting  from  $1000  to  $1500,  about  J,  one  with  from  $1500 
to  $3000,  al)out  |,  one  with  from  $3000  to  $7500,  about  j'^,  one  witli  a 
higher  income  than  this  about  ^'j.  Probably  90  per  cent  of  the  families 
in  that  city  pay  i.  In  the  U.  S.  the  proportion  is  doubtless  somewhat  smaller 
for  the  poor  and  much  larger  for  the  rich. 


§  127     Legitimacy  of  Need 

Seneca,  Epistle  xxxix  [moderate  riches  the  best:  useless  wants].    Hume,  Essay,  Of  Re- 
finement in  the  Arts.     The  authh.  at  §  131. 

Needs  are  not  to  be  recklessly  multiplied,  but  lim- 
ited to  those  whose  existence  and  supply  are  neces- 
sary to  our  best  protlucing  power  and  largest  life.^ 
Very  often,  however,  the  creation  of  new  need  will 
bring  with  it  a  more  than  proportional  productive 
ability.  This  may  occur  directly,  as  when  the  ignorant 
and  degraded  acquire  culture  and  the  accompanying 
enlargement  of  manhood,  or  indirectly,  by  the  limita- 
tion of  population,  rendering  the  laboring  class  more 
productive  in  proportion  to  its  total  need.  There  are 
also  needs,  religious,  moral,  a'sthetic,  whose  existence 
is  a  good  though  they  may  not  enhance  productive 
ability  at  all. 

1  What  this  is  Economics  must  iind  out  from  Ethics.  In  proportion  as 
needs  are  fictitious  and  abnormal  the  gratification  of  them  becomes  destruc- 


194  NEED 

live  consumption.  Economic  law  liorc  agrees  with  ethical.  Pre-eminently 
in  the  department  of  Consumption  does  Economics  abut  upon  Ethics 
[§  131,  n.  2].  At  many  points  the  question  whether  an  act  or  a  process 
is  productive  or  the  reverse  is  absolutely  unanswerable  by  Economics  alone. 
Hume,  as  above,  has  good  thoughts  on  the  sorts  of  want-creation  which 
ought  to  be  encouraged. 


CHAPTER    II 

economy  in  supply 
§  128     Generic  Principles 

It  is  possible  to  use  up  wealth  (i)  in  placating  leg-iti- 
mate  and  proper  needs, ^  (ii)  as  dead  loss,  answering  no 
requirement  at  all,  (iii)  disproportionately  to  the  neces- 
sities satisfied,  or  (iv)  to  meet  cravings  that,  as  base 
and  deleterious,  ought  to  be  repressed.  Obviously, 
with  given  resources,  society  will  be  prosperous  eco- 
nomically in  proportion  as  (i)  expenditure  is  had  only 
for  legitimate  needs,  and  (ii)  all  needs,  these  or  other, 
which  are  ministered  to  at  all,  are  supplied  with  the 
smallest  outlay  adequate  to  the  end. 

1  See  §  127. 

§  129     Specific  Principles 

Mangoldt,  §  139.      Chapiit's  U^ayland,  ch.  x. 

i  In  satisfying  needs,^  our  own  or  those  of  other 
people,  we  should  prefer  if  equally  efflcient,^  (i)  repro- 
ductive^  to  unproductive^  consumption,  (ii)  less  unpro- 
ductive to  more,  and  (iii)  hig-h  and  lasting-  gratifications 
to  low  and  fleeting  ones,  ii  It  is  important  that  (i)  every 
utility  connected  with  the  consumed  wealth  should  be 
entirely  consumed,  and  that  (ii)  they  should  all  be 
applied  in  the  most  advantageous  manner,  iii  In  case 
of  any  proposed  doubtful  expenditure,  we  should  ask, 
(i)  Will  it  on  the  whole  and  in  the  long  run  tend  to 
production   or   i)r<>ductivcness  ?      If    not,    (ii)    will    it 


196  ECONOMY    IN    sri'ri.Y 

inure  to  the  elevation  or  to  the  degradation  of  charac- 
ter? If  it  will  elevate,  (iii)  will  the  wliole  ffoocl  attained 
by  the  consumption  exceed  that  to  be  expected  if  the 
wealth  remains  uneonsuined  ?  In  replying  to  (iii),  re- 
member that  the  moral  effort  of  foregoing  a  benefit  is 
likely  to  be  itself  a  benefit. 

1  J.  Tucker  [Two  Sermons,  29  sqq. :  cited  by  Roschcr,  §  102,  n.  2],  lays 
it  down  tliat  a  man  ought  (i)  not  to  spend  beyond  his  income,  (ii)  to  pro- 
vide for  hinaself  and  family,  (iiij  to  lay  l)y  something  for  a  rainy  day, 
(iv)  to  be  able  to  aid  the  poor,  (v)  to  indulge  in  no  pleasure  injurious  to 
body  or  mind,  and  (vi)  to  set  in  his  expenditure  no  bad  example. 

-  If  the  reproductive  form  is  less  efficient  in  the  given  case,  then  the 
question  must  turn  upon  the  character  of  the  proposed  unproductive  form. 
See  iii,  in  this  §,  also  §§  127,  131,  n.  2. 

3  A  new  coat  to  a  feast  or  a  concert,  for  instance.  It  is  true  that  the 
need  addressed  would  not  be  the  same  in  the  two  cases,  yet  to  a  person 
with  limited  resources  precisely  such  an  alternative  is  often  presented. 

*  A  good  coat  to  a  fine  one  of  poorer  quality,  for  instance.    Cf.  n.  2. 

§  130     Prevention  of  Loss 

Mangoldt,  §  135.     Thomson,  'Waste  by  Fire,'  Forum,  Sept.,  1886. 

While  the  vices  specified  at  §  50,^  causing  waste, 
are  responsible  for  enormous  destruction  of  wealth,  it 
is  to  be  observed  that  much  useless  consumption  is  in- 
evitable,^  due  to  the  very  nature  of  thinj^s.  Of  this 
loss  the  volume  can  be  reduced  only  by  the  progres- 
sive mastery  of  matter  by  mind,  displayed  in  new 
arts  and  inventions.  Our  resources  are  :  i  Improved 
means  for  preserving  perishable  goods.-^  ii  Wider 
knowledge,  through  more  general  education  and  in- 
telligence, f)f  such  means  as  at  any  time  exist,  iii  A 
more  durabl<;  construction  of  buildings  and  other 
objects  exposed  to  the  destructive  elements,     iv  Better- 


ECONOMY    IN    SUPPLY  I 97 

mcnts    in    police,^   veterinary,    and    sanitary    science, 

legislation,  and  administration,  v  A  firmer  grasp  and 
wider  observance  of  the  laws  of  lif(;  in  all  its  spheres, 
social  and  moral  as  well  as  physical,  intensifying 
men's  productive  i)owcr,  lengthening  their  average 
productive  period,  and  diniiaisiiiiiy:  the  size  of  the 
unproductive  and  dependent  class. 

1  See  that  §,  and  notes.  In  point  is  the  incident  related  by  J.  B.  Say, 
P.  E.,  bk.  ii,  ch.  V.  A  small  latch  was  gone  from  a  farmyard  gate.  One 
day  a  pig  escaped  into  the  woods,  "  and  the  whole  family,  gardener,  cook, 
milkmaid,  etc.,  turned  out  in  search.  The  gardener,  in  leaping  a  ditch,  got 
a  sprain  that  confined  him  to  his  Ijed  for  a  fortnight.  The  cook  found  the 
linen  burnt  that  she  had  left  at  the  fire  to  dry.  The  milkmaid  forgot,  in 
her  haste,  to  tie  up  the  cattle  in  the  cowhouse,  and  one  of  the  loose  cows 
broke  the  leg  of  a  colt  that  was  kept  in  the  same  shed."  Say  figures  at  20 
crowns  the  loss  of  these  minutes,  all  for  want  of  a  bit  of  iron  which  would 
have  cost  but  a  few  sous. 

2  Professor  Chandler  Roberts,  says  the  Engineering  and  Mining  Jour- 
nal, estimates  the  weight  of  the  smoke  cloud  which  daily  hangs  over 
London  at  about  fifty  tons  of  solid  carbon,  and  250  tons  of  carbon  in  the 
form  of  hydrocarbon  and  carbonic-oxide  gases.  Calculated  from  the  average 
result  of  tests  made  by  the  smoke  abatement  committees,  the  value  of  coal 
wasted  in  smoke  from  domestic  grates  amounts,  upon  the  annual  consump- 
tion of  5,000,000  people,  to  $12,287,500. 

^  See  §  54,  n.  6. 

*  It  was  sheer  neglect,  nothing  else,  which  caused  the  fearful  Conemaugh 
disaster  in  and  about  Johnstown,  Pennsylvania,  May  31,  1889,  when  the 
bursting  of  an  ill-made  dam  caused  the  loss  of  perhaps  10,000  lives  and 
$10,000,000  worth  of  property  [figures  very  uncertain]. 

§  131      Luxury  and  Idle  Wealth 

Roscher,  '  Ueber  den  Liixtts '  [in  Ansichteti,  vol  i].  Goldwin  Smith,  '  UTiat  is  Cul- 
pable Luxury'  [in  Lectt.  and  Essays].  I'ii-rteljahrsch.  f.  Volkswirtsch.,  XXII,  i, 
24  sqq.  Periii,  Richesse  dans  Us  socieiis  chretiennes.  Bandrillart,  Histoire 
dii  luxe.     Lexis  [as  at  §  124],  §§  11  sqq. 

Consumption  beyond  the  actual  requirements  of 
life  may  be  termed  luxury,  'luxuries,'  of  course,  vary- 


198  ECONOMY    IN    SUPPLY 

ing  in  their  definition  as  the  standard  of  living  ad- 
vances, and  the  luxury  of  one  generation  becoming  a 
necessity  of  the  next.  It  is  clear  from  the  principles 
already  laid  down  that  while  certain  species  of  con- 
sumption are  always  reprehensible,  the  use  of  luxuries 
is  in  itself  never  so.  What  luxury  then  is  culpable? 
The  foregoing  paragraphs  enable  us  to  reply,  i  Con- 
sumption for  luxuries  is  to  be  condemned  from  the 
point  of  view  of  one's  own  personal  life,  (i)  when 
addressed  to  no  rational  necessity,  or  out  of  propor- 
tion to  such  necessity  provided  it  exists,  (ii)  when 
addressed  to  less  pressing  or  important  needs  to  the 
neglect  of  those  more  so,  and  (iii)  when  it  transcends 
one's  means,  ii  It  is  an  evil  from  the  social  point  of 
view,  (i)  unless  it  stimulates  rather  than  discourages 
labor,  and  (ii)  unless  it  elevates  instead  of  degrading 
the  characters  of  men.^  The  same  principles-  hold  in 
cases  where  wealth  is  not  immediately  consumed,  but 
invested  in  idle  forms,  as  needlessly  costly  dress, 
houses,  equipage,  jewelry  or  plate,  works  of  art  to 
feed  vanity  or  to  please  the  taste  of  a  select  few,  etc. 
In  all  such  expenditures  so  much  capital  is  lost^  to 
the  support  of  labor,  as  truly  as  by  fire  or  hurricane. 

1  Baudrillart,  as  above,  vol.  i,  §  98. 

2  The  view  characterized  in  n.  10,  of  §  20,  is  set  forth  by  Bayle,  Dic- 
tionary, vol.  iv,  520.  Arguing  on  the  notion  of  the  Stoics  that  evil  is 
necessary  as  a  foil  or  fender  over  against  good  to  make  it  appear  as  good, 
he  says:  "Nevertheless  it  must  be  acknowledged  that  they  were  in  the 
right  in  some  respects,  for,  to  give  an  instance  of  it,  can  anything  be  ?)iore 
useful  than  luxury  for  the  maintenance  of  many  families  that  would  starve 
if  the  great  men  and  ladies  spent  but  little."  On  this  specious  but  wholly 
untenable  theory,  study  §  50,  n.  i,  and  the  references  there  made.  Cf.  also 
Lexis  [as  at  §  124],  §  19,  and  Mill,  bk.  i,  ch.  v.  For  the  Cleopatra  who 
drinks  pearls,  the  Heliogabalus  who  feasts  on  nightingales'  tongues,  or  the 


ECONOMY    IN    SUPPLY  I 99 

niudern  speiKlthiiU  wliu  j^ives  an  all-ni^'lil  entertainment  costing  thousands 
and  leaving  only  "  withered  flowers,  rumpled  vanities,  deranged  stomachs, 
and  overtaxed  nerves,"  Economics  finds  no  more  justification  than  for  the 
Nero  who  burns  Rcjnie  [Hrown,  Studies  in  Sot  ialism,  xii].  It  will  be  said 
that  all  these  things  furnish  work.  So  does  a  cunllagration.  An  uncle  of 
I.  H.  Say,  the  French  economist,  broke  his  wineglass  after  dining,  remark- 
ing, "  the  world  must  live."  Say  wondered  "  why  he  did  not  break  the  rest 
of  his  furniture  for  the  benefit  of  the  world's  workmen."  That  a  product 
wears  out  prematurely,  and  must  be  replaced  is  no  industrial  benefit,  and 
no  more  is  extravagant  expenditure.  It  furnishes  immediate  employment, 
but  it  stops  there  [ibid.].  On  needless  wealth  causing  poverty  at  Rome, 
lilanqui.  Hist,  of  P.  E.,  ch.  vii.  The  consideration  raised  in  the  text  and 
dwelt  upon  in  this  note  should  be  regarded  in  many  cases  of  unproductive 
consumption  which  arc  in  themselves  wholly  legitimate,  as  building  a 
church,  sending  money  to  tlie  heathen,  investment  in  fine  art  though  for 
public  behoof.  Outlays  of  this  kind  certainly  withdraw  capital  from  the 
support  of  labor.  The  man  who  loves  his  kind  will  in  proposing  an  ex- 
penditure of  this  order  raise  the  [ethical]  cjuestion  whether  his  capital  is 
likely  to  effect  more  good  on  the  whole  and  in  the  long  run  laid  out  as 
proposed,  or  productively.  More  imperative  still  is  the  query  if  I  meditate 
gratifying  a  merely  personal  need,  however  noble.  So  far  as  this  life  is 
concerned,  there  may  lie  an  absolute  conflict  between  my  highest  interest 
and  that  of  the  laboring  class  [§  15,  n.  4]. 


Part    VI 


PRACTICAL    TOPICS  INVOLVING  ECONOMIC 

THEOR V 


-<>Oj©:JOO- 


CHAPTER    I 

COIN    CURRENCY    IN   THE    UNITED    STATES 

§  132     Colonial  Times 

Suntuer,  H.  of  Am.  Currency.     '  Dollar,'  '  Cent,'  and  '  Coin,'  in  Am.  Encyc.     Bryant 
and  Gay,  Hist,  of  U.  S.,  vol.  iii,  131  sqq. 

The  earliest  colonial  coin  is  believed  to  have  been 
one  struck  in  1G12,  on  the  Bermudas,  for  the  Virginia 
Company.  The  first  coinage  upon  the  main  land  issued 
from  the  'mint  how.sc'  at  Boston,  under  act  of  the 
Massachusetts  general  court,  1652.  There  were  twelve 
pence,  si.\  pence,  and  three  pence  pieces.  The  plain- 
ness of  these  exposing  them  to  wa.shins'  and  clipping, 
the  *pine  tree  coinage '^  was  the  same  year  ordered 
struck  from  a  new  die.  This  Massachusetts  mint  stood 
about  thirty-four  years,  and  a  new  one  went  into  opera- 
tion in  1788.  Coins  for  America  were  made  in  Eng- 
land, at  first  for  Maryland  alone,  later  for  the  colonies 
at  large.  The  execrable  'Wood'.s  money,'^  of  pinch- 
beck, was  among  these.     From   1778  to  1787,  not  only 


COIN    CURRENCY   IN    THE    UNITED    STATES  201 

Congress  but  several  states  as  well  issued  copper 
coins,^  Connecticut  and  Vermont  in  1785,  New  Jersey 
in  1786  and  1787. 

1  This  designation,  the  usual  one,  does  not  in  strictness  apply  to  the 
whole  coinage,  as  part  of  the  pieces  bore  the  liiiencsses  of  other  trees. 
The  assumption  by  Mass.  of  the  right  to  coin  was  one  of  the  things  which 
at  this  period  so  incensed  Charles  II  against  the  colony. 

2  In  1 722  George  I  commissioned  one  William  Wood  to  coin  pinchbeck 
money  for  the  colonies.  A  pound  of  the  material  [3  oz.  zinc  to  16  of 
copper],  which  somewhat  resembled  gold,  was  coined  into  13  shillings. 
Little  of  the  money  circulated. 

^  These  are  now  rare.  The  Jersey  copper  wore  on  the  obverse  the 
inscription  Nova  Censer ea,  a  horse's  head,  and  under  it  a  plough;  the  reverse, 
a  shield  and  the  legend,  e  pluribus  unum.  The  continental  copper  of 
17S7  had  13  rings  on  one  side,  representing  the  13  original  states.  Each 
ring  had  the  initial  letter  of  a  state.  "  Tempus  Fugit,"  sun  dial  with  rays, 
and  "  Mind  Your  Business  "  were  the  other  insignia.  On  the  continental 
copper  of  1793  was  a  head  of  Liberty,  with  full,  streaming  hair. 


§  133     Earliest  National  Coinage 

McMaster,  U.  S.,  vol.  i,  189  sqq.     Bancroft  [author's  last  rev.],  vol.  vi,  119.     Laugh- 
lin.  Bimetallism  in  U.  S.,  pt.  i,  ch.  ii. 

A  plan  for  a  national  decimal  coinage,  which  Robert 
and  Gouverneur  3rorris  and  Jefferson^  had  devised, 
was  approved  by  Congress  in  1785-6,  its  unit  a  dollar, 
virtually  the  same  as  the  Spanish,  in  which  the  Conti- 
nental Congress  kept  its  account-s.^  Jefferson's  dollar 
contained  375tVf  grains  of  fine  silver.  Half-dollars, 
double  dimes,  dimes,  cents  and  half-cents  were  to  be 
coined  in  proportion,  also  gold  eagles  and  half  eagles, 
but  no  value-relation  between  gold  and  silver  was 
fixed.  These  gold  coins,  with  the  addition  of  double 
and  quarter  eagles  and  three  dollar  pieces,  all  reduced 
to  someAvhat  less  than  the  original  amount  of  gold  to 


202  COIN    CURREN'CY   IN    THE    UNITED    STATES 

the  dollar,^  still  remain,  mechanically  and  artistically 
among  the  best  in  the  world. 

^  According  to  McMaster,  vol.  i,  195,  the  real  work  was  done  by  Gou- 
verneur  Morris. 

'^  Because  in  Pa.  and  N.J.,  where  the  old  Congress  sat,  this  had  come  to 
be  the  most  common  money.  The  .Spanish  milled  dollar,  'pillar'  dollar,  or 
'  piece  of  8 '  ['  Reals,'  '  Ryalls,'  or  '  Royals '],  is  one  of  the  most  interesting 
pieces  ever  coined.  It  began  to  be  used  in  our  southern  colonies  by  1650, 
and  gradually  worked  its  way  l:)efore  the  Revolution  to  the  extreme  north. 
None  of  our  histories  have  any  adequate  account  of  colonial  metal  money 
or  colonial  money  of  account.  The  colonists  at  first  used  not  only  English 
money  denominations  but  English  money  itself.  By  1650,  however,  the 
colonial  pounds,  shillings,  and  pence  had  become  depreciated  in  compari- 
son with  sterling,  so  that  from  this  time  on  the  colonial  pound  was  at  no 
time  or  place  the  equal  of  the  pound  sterling.  Moreover,  the  depreciation 
was  different  in  different  groups  of  colonies.  If,  about  1760,  we  call  the 
pd.  sterling  100,  the  Ga.  pd.  would  equal  90;  the  N.E.  and  Va.  pd.,  75; 
the  pd.  of  the  middle  colonies  [N.J.,  Pa.,  Del.,  and  Md.],  60;  and  the  N.Y. 
and  N.C.  pd.,  56].  Corresponding  to  these  various  degrees  of  depreciation, 
the  Spanish  dollar,  which  was  the  equal  of  4?.  6(/.  sterling,  passed  for  55.  in 
Ga.,  for  6s.  in  N.E.  and  Va.,  for  ys.  Gd.  in  the  middle  colonies,  and  for  2>s. 
in  N.Y.  and  N.C.  Colonial  pds.,  sh.  and  pence  were  nothing  but  money  of 
account,  there  being  under  these  names  no  corresponding  coins.  Very  vari- 
ous coins,  Phiglish,  German,  Dutch,  French,  Portuguese,  and  Spanish,  circu- 
lated, but  far  the  most  common  by  1750  was  the  Spanish  dollar  with  its 
halves,  quarters  and  eighths.  It  was  common  and  for  legal  purposes  neces- 
sary to  name  each  of  these  in  terms  of  the  shillings,  pence,  etc.,  of  each 
group  of  colonies.  The  eighth  part  of  the  dollar  [the  i  Real  piece—  \2\ 
cents],  e.g.,  happened  in  N.Y.  exactly  to  equal  the  shilling.  In  N.E.  it 
was  very  nearly  9  pence,  and  was  so  called.  In  the  middle  colonies,  where 
the  dollar  contained  90  pence  [75.  6(/.],  it  was  il  pence  and  a  fraction, 
and  was  hence  called  the  '  levy.'  Correspondingly,  the  half  Real,  or  6\ 
cent  piece,  was  known  in  N.'N'.  as  '  sixpence,'  in  N.E.  as  '  fourpence '  or 
'  fopence,'  and  in  Pa.  and  N.J.  as  the  '  fippenny  bit '  or  '  fip.'  When  nine- 
penccs  and  levies  became  much  worn  they  passed  for  dimes,  whence  the 
dime  came  to  be  sometimes  called,  in  N.E.  a  ninepence,  in  I'a.  and  N.J.  a 
levy,  names  heard  in  country  parts  so  late  as  i860. 

"  For  the  variations  in  the  weight  of  our  gold  money,  sec  next  §,  ii, 
and  '  Dollar,'  in  Am.  Encyc.     As  noted  at  §  85,  n.  4,  the  U.  S.  now  takes 


COIN    CURRF.XCV   IN    THE    UNITED    STATES  203 

no  seigniorage  fur  coining  gold,  tlie  change  having  been  introduced  by 
the  act  of  Jan.  14,  1875  C^^*^-  2].  ft>r  resuming  specie  payments  [Revised 

Stat.,  §3524]- 

§  134     The  Dollar  of  the  Fathers 

Laughlin,  as  at  preceding  §,  pts.  i,  ii.     '  Money,'  in  Am.  Encyc.     BoUes,  as  at  §  139, 
bk.  ii,  ch.  V. 

i  By  the  mini  law  of  171)2,  framed  under  the  sur- 
veillance of  Hamilton,  the  silver  dollar  was  made  to 
contain  371.25  grains  of  fine  silver,  416  of  standard,^ 
the  alloy  constituting  ^VVf  parts  of  entire  weight.  The 
amount  of  pure  silver  in  this  dollar  has  remained  un- 
changed ever  since,  but,  in  1837,  by  the  reduction  of 
the  alloy-fraction  to  the  more  convenient  one  of  yV,  the 
coin  assumed  the  weight  which  it  now  has,  41 2  J-  grains, 
y\  fine.2  ii  The  law  of  1792  had  fixed  the  value-rela- 
tion between  silver  and  gold  at  15:1,  which  proportion 
of  silver  being  too  small,-'^  gold  retired.  The  gold  bill 
of  1834  changed  the  proportion  to  16:  i,  over-valuing' 
gold  in  turn  and  retiring  silver,  iii  In  1853,  on  account 
of  the  still  further  appreciation  of  silver  through  the 
discovery  of  gold  in  California'^  and  Australia,  not  only 
had  the  silver  dollar  totally  passed  from  circulation, 
but,  to  retain  in  the  country  the  subordinate  silver,  it 
was  necessary  to  render  this  a  token  coinage  by  extract- 
ing a  seigniorage  of  6]-f  per  cent  ^  the  face-value  of  each 
coin,  token  silver  being  after  this  legal  tender  only  to 
$5.00.  The  silver  dollar,  however,  remained  full  legal 
tender  till  1873,  when,  having  in  relation  to  gold  greatly 
depreciated*^  again  through  large  increase  in  silver  pro- 
duction, lessened  exportation  to  Asia,  and  the  assump- 
tion by  the  German  Empire  of  the  gold  standard,  it  was 
silently  demonetized." 


204  COIN    CURRENCY    IN    THE    UNITED    STATES 

1  Or,  as  figured  by  Perr)',  330,  it  was  S924  fine. 

-  Our  gold  coins  have,  also  since  1837,  ^^is  same  fineness.  They  are 
intended  to  contain  y^gj  of  copper,  and  x5o?r  °'^  ^^^^  °f  silver.  If  less  than 
this  silver,  the  lack  is  made  up  in  copj>er,  such  margin  being  known  as  the 
'  tolerance '  [see  Lalor,  vol.  i,  509].  On  fineness  of  Eng.  coins,  §  75,  n.  10, 
The  Canadian  coins  agree  in  this  respect  with  the  English. 

^  It  was  at  the  time  exactly  correct,  but  silver  was  already  growing 
cheaper  relatively  to  gold,  so  that  in  the  London  market  almost  immediately 
over  15  parts  of  silver  were  required  to  equal  i  of  gold.  Less  and  less  gold 
of  course  came  to  our  mints  [Gresham's  law,  §  85,  n.  5],  some  years  hardly 
any.  After  1S34,  precisely  the  reverse  conditions  prevailed,  the  silver  which 
had  circulated  gradually  hiding  itself  away.  A  lively  business  was  done  at 
buying  up  the  dollars  from  ignorant  holders  and  selling  them  as  bullion. 

*  Cf.  von  Hoist,  Const,  and  Pol.  Hist,  of  U.  .S.,  vol.  iii,  405. 

''  Our  subordinate  silver  coins  [tokens]  were  somewhat  enriched  again 
in  1873.  Before  that,  the  weight  of  2  halves,  4  quarters,  or  10  dimes  was 
3S5.8  grains,  or  25  grams,  and  their  value  .93,'f  that  of  the  full  weight 
dollar.  Now  the  value  is  .93I}!!  of  full  weight,  giving  a  seigniorage  of 
about  6)*^  per  cent.  Our  present  half  dol.  exactly  equals  in  weight  and 
value  half  of  a  Erench  silver  5  franc  piece.  There  are  now  66  P^ng.  shil- 
lings in  a  Troy  pound  of  silver.  Eng.  silver  money  consists  of  tokens, 
legal  tender  only  to  the  sum  of  40  shillings,  each  piece  having  a  bullion 
value  6/.J  per  cent  less  than  its  face  value. 

^  This  phenomenon  is  more  truthfully  characterized  as  an  appreciation 
of  gold.  The  power  of  silver  to  purchase  general  commodities  did  not  sen- 
sibly, if  at  all,  decrease,  but  that  of  gold  increased.  General  prices,  i.e.  [the 
only  sure  test,  see  §§  70,  87],  fell  in  gold  countries,  remained  stationary  in 
silver  countries. 

"  The  act  was  popularly  but  with  little  doubt  erroneously  believed  at  the 
time  to  have  been  carried  through  Congress  in  guile,  that  knowing  parties 
might  realize  from  the  rise  of  gold. 

§  135     Remonetization 

Laugklin,  Bimetallism  in  U.  S.,  pt.  iii.     '  Bullion,'  in  Encyc.  Brit.     Crier,  The  Silver 
Dollar.     Voiles,  as  at  §  139,  bk.  ii,  ch.  v. 

On  the  ground  that  the  government  boiid.s  issued 
during  the  war  had  been  made  payable  in  *coiii'^  and 
that  the  demonetization  of  silver,  if  persisted  in,  would 


COIN    CURRENCY    IX    THE    UNITED    STATES  20$ 

work  hardship  to  taxpayers  in  liquidating  the  national 
debt,  Congress,  in  i87<S,2  restored  to  the  old  silver  dollar 
its  full  leg-al  tender  quality,  ordering,  however,  instead 
of  free  coinage,  that  only  a  g:ivcii  ainouut,  not  under 
two  or  to  exceed  four  million  dollars'  worth,^  be  coined 
monthly.  Although  still  for  many  years  the  value  of 
the  gold  dollar  continued  to  g-ain  over  that  of  the  bul- 
lion in  the  silver,"*  silver  dollars  and  certificates  have 
inflexibly  held  to  the  grold  par.  But  the  position,  all 
admit,  is  anomalous. 

^  Which  of  course  at  the  time  legally  included  silver  as  well  as  gold. 

-  The  act  passed,  over  President  Hayes'  veto,  on  Feb.  28. 

3  Not  so  many  dollars,  but  so  many  dollars'  luorths,  very  different  con- 
ceptions. If  the  bullion  in  a  silver  dollar  cost  but  75  cents,  $1,000,000 
'ivorlh  of  silver  would,  ignoring  alloy,  yield  I  \  millions  of  dollars.  The  orig- 
inal bill  provided  for  free  coinage.  The  limiting  clause  originated  in  the 
.Senate,  with  Senator  Allison,  and  was  dubbed  '  Allison's  tip.' 

*  May  15,  1888,  and  on  one  or  two  other  occasions,  the  London  price 
of  silver  fell  to  i,2d.  an  ounce,  corresponding  to  a  bullion  price  for  the  silver 
dollar  of  about  71.5  cents.  By  noting  in  any  report  of  the  London  market 
the  price  of  silver  bullion  there,  the  bullion  value  of  the  silver  dollar  is 
easily  figured  according  to  the  following  rule.  By  whatever  per  cent  silver 
in  London  goes  above  or  below  58.98008  pence  an  oz.,  the  bullion  in  the 
silver  dollar  is  worth  more  or  less  than  one  hundred  cents  in  gold.  For 
another  rule,  see  Rep.  of  Paris  Monetary  Conf.  of  1878,  early  pp.  The 
relation  between  the  prices  of  pure  gold  and  pure  silver,  or  of  gold  and 
silver  of  any  given  fineness,  provided  it  is  the  same  for  each  metal,  may  be 
found  by  dividing  943  by  the  no.  of  pence  per  ounce  which  the  silver  costs. 
This  rule  is  developed  as  follows:  Gt.  Britain  makes  1869  sovereigns  from 
40  pounds  Troy,  \\  fine  (nearly).     Hence  an  ounce  Troy  of  gold  \\  fine 

is  worth  — — 2_  =  CzWl  or  ;^3  175.  \od.  =  934^(/.;   and  the  val.  of  the 
40  X  12 

oz.  Troy  ol pure  gold  is  934}  X  [f.     An  oz.  of  pure  silver  at  x  pence  per 

oz.  W  fine  w'd  be  jr|^  or  l_f.     Now  to  find  how  many  times  more  valu- 

37 
able   a   given   weight   of  gold   is  than  a  given  weight  of  silver,  divide 

9341  X  if  by  —   which  =• ~ or  (nearly)  -j-       /.<•.,   if  $  i 


206  COIN'    CURREXCY    IX    THE    UNITED    STATES 

943 
gold   weighs    25.S   grains,  ?  i   silver  weighs  25.8  X grains.     Also,  if 

that  weight  of  silver  is  worth    but   $1.00,  412.5    grains   will   be   worth 

943 
proportionally  less.     I.e.,  as  25.8  X  — r  is  to  icx)  cents,  so  412.5  will  be  to 

the  value  of  the  dollar  of  tlic  fathers  in  gold  cents.  French  and  German 
discussions  usually  describe  our  coins  in  terms  of  the  Metric  System.  A 
grain  Troy  is  .064S  of  a  gram.  Hence  the  gold  dollar,  of  25.8  grains, 
weighs  1.67184  grams,  and  the  silver  dollar,  of  412^  grains,  26.73  grams. 
A  kilogram  of  gold  contains  very  nearly  5690,  or  ;^I39  los.  A  kilogram 
of  silver,  at  the  ratio  to  gold  of  15  J  to  i,  contains  about  ^43.80,  or  £<j. 

§  136     The  Future 

Laughlin,  ed.  of  Mill,  Appendix  [good  bibliog.  on  silver  qn.].  Cf.  our  §  77,  above,  and 
its  authh.,  esp.  U.  S.  Consular  Rep.,  Dec,  1887.  /.  W.  Sylvester,  Bullion  Certifi- 
cates: The  Safest  and  Best  Money  Possible  [a  pamph.,  1884].  Knox,  United  States 
Notes,  ch.  X. 

i  The  gold  monometallists  woukl  at  once  and  forever 
demonetize  silver,  ii  The  more  pronounced  friends  of 
silver  cling  to  the  present  law,i  willing,  apparently, 
that  the  worst  possible  should  come,  allowing  silver, 
if  need  be,  the  monopoly  which  gold  has  enjoyed  since 
1873.  iii  The  advocates  of  rated  or  proper  bimetal- 
lism 2  hope  that  the  United  States  will  assume  no 
final  attitude  against  silver  as  full  money  till  effort  for 
a  bimetallic  league  of  nations  has  been  exhausted, 
iv  A  fourth  party  would  realize  M.  Joseph  Garnier's 
theory  of  unrated  or  formal  bimetallism,  further  pro- 
posing that  gold  bullion  as  well  as  gold  coin  be  made 
legal  tender  and  the  standard  of  value,  silver  like- 
wise legal  tender  but  only  at  its  market  value  in 
gold,  calculated  and  published  daily  by  government. 
With  numerous  great  merits,  this  plan^  has  in  kind  the 
defects  of  gold  monometallism.  International  bimetal- 
lism, of  which  there  is  little  hope,^  would  relieve  us  for 


COIN    CURRENCY    IN    TIIK    UNITED    STATES  20/ 

a  time,  but  only  for  a  time.     Wise  action   must   look 
toward  ideal  money.^ 

^  Except  tliat  many  wish  the  free  coinage  of  silver. 

2  See  §  77. 

■'  This  is  the  scheme  of  Sylvester's  pamph.  named  above.  It  allows  to 
the  dollar  all  the  fluctuations  in  value  to  which  gold  alone  is  subject,  this 
metal  being  the  only  ultimate  standard,  but  it  would  somewhat  limit  the 
range  or  sweep  of  these,  in  that  a  good  deal  of  silver  would  be  in  use  as 
medium  of  exchange. 

*  See  the  Consular  Report  named  above,  esi).  Appendix  D,  by  the 
learned  Soetbecr.  Comparable  with  these  invalualde  "Materials"  given 
us  by  Soetbeer  on  the  Silver  Question,  is  the  memorandum  by  R.  H.  Inglis 
Palgrave,  printed  as  App.  B  to  the  final  Report  of  the  [1886]  British  Com- 
mission on  the  Depression  of  Trade  and  Industry.  It  is  based  on  Soet- 
beer, but  adds  much  that  is  valuable.  Germany  would  probably  join  a 
bimetallic  league  but  for  the  opposition  of  England,  who,  as  the  great 
creditor-nation,  declines  to  take  a  step  destined  to  cheapen  the  sort  of 
coin  in  which  debts  are  to  be  paid  her. 

5  See  §  87. 


CHAPTER   II 

paper  currency  in  the  united  states 

§  137     Early 

Knox,  United  States  Notes,  chaps,  i,  ii.  Bryant  and  Gay,  U.  S.,  vol.  iii,  107,  n.  131 
sqq.  Greene,  Historical  View  of  the  American  Revolution,  143,  and  Lect.  v  [best 
brief  account].     Bancroft,  U.  S.  [last  revision] ,  vol.  vi,  167  sqq. 

Down  to  the  Revoliitiou  the  paper  money  of  Amer- 
ica consisted  in  various  kinds  of  credit  bills  issued  by 
the  colonies,  which  became  so  depreciated  ^  that  ]\Ias- 
sachusetts  gave  up,  and  Parliament  finally  forbade, 
their  issue.  After  the  Declaration  of  Independence 
both  Congress  and  the  states  returned  to  them,  putting 
forth  such  amounts  that  at  the  close  of  the  Revolu- 
tion they  were  99^^  per  cent  below  par. 

^  The  pupil  must  bear  in  mind  to  distinguish  colonial  paper  money  from 
colonial  hard  money  [§  133,  n.  2].  The  depreciation  mentioned  in  the 
present  §  [cf.  Walker,  Wages,  16],  was  in  nearly  all  or  all  cases  additional 
to  that  spoken  of  in  §  133,  n.  2.  Mass.  first  uttered  credit  bills  in  1690, 
after  the  attack  on  Port  Royal.     Greene,  143,  Bancroft,  vol.  ii,  262  sq. 

§  138     Thence  to  the  Civil  War 

Macleod,  Diet,  of  P.  E.,  vol.  i,  170  sqq.     '  Banking,"  in  Lalor;  do.  in  Encyc.  Brit. 

i  From  this  time  till  1863  banking  was  practically- 
free,  any  banking  corporation  being  permitted  to  issue 
bills  on  condition  of  obeying  certain  easy  requirements, 
and  promising  to  redeem  in  coin  on  demand.  Paper 
was  over-issued.  Immense  numbers  of  banks  failed, 
particularly  in   18 14,   18 19  and   1837.      Suspensions  of 


PAPER    CURRENCY    IN    THE    UNITED    STATES  2O9 

specie  payment  were  frequent.  The  loss  in  bills  of 
broken  banks  is  thought  to  have  averaged  during  these 
years  some  five  per  cent  of  the  circulation  annually, 
ii  About  1840,  a  plan  was  adopted  in  New  York  State, 
which  became  in  1863  the  basis  of  the  national  bank 
scheme.^  It  arranged  that  any  person  depositing  with 
the  state  government  good  securities  to  the  minimum 
amount  of  $50,000,  and  any  corporation  depositing 
$100,000,  might  issue  an  amount  of  notes  equal  to  the 
deposit.  This  plan  was  far  preferable  to  the  policy  of 
the  other  states,  yet  liable  to  many  objections.  The 
Suffolk  bank  system  was  another  step  in  the  right 
direction.  New  England  banks  depo.siting  funds  with 
the  Suffolk,  in  Boston,  for  the  redemption  of  their 
notes.  If  funds  from  any  bank  failed,  notes  were  de- 
clined and  the  state  of  such  bank  became  publicly 
known. 
^  See  §  141. 

§  139     Government  Paper 

Knox,  United  States  Notes,  chaps,  iv  sqq.  Powers,  '  Greenback  in  the  War,'  Pol.  Sci. 
Quar.,  vol.  ii.  'Money'  in  Am.  Encyc.  Aiwater,  Princeton  Rev.,  Jan.,  1882. 
Ronne,  '  Zwangscours  der  Nordamerikanischen  Tresorscheine^  in  Viertel- 
jahrsch,  f.  I'olksw.,  1863,  vol.  ii.  Bolles,  Financial  H.  of  U.  S.  1861-85,  bk.  i, 
chaps,  iv,  V. 

United  States  treasury  notes  had  been  issued  in 
181 2,  1837  and  1857,  bearing  interest,  but  not  for  gen- 
eral circulation  and  not  legal  tender.  In  l86i,  at 
the  opening  of  the  civil  war.  Congress  allowed  the  issue 
of  fifty  million  in  similar  notes,^  payable  on  demand, 
without  interest,  heralds  of  those  immense  greenback 
issues,  amounting  at  one  time  to  more  than  four  hun- 
dred million  dollars,  which,  being  made  legal  tender 
for  all  payments  save  duties  on  imports,  did  so  much 


2IO         TAPER    CURRENXV    IN    THE    UNITED    STATES 

to  place  and  keep  our  national  finances,  till  January  i, 
1879,  on  a  basis  other  than  coin,  thus  greatly  aggra- 
vating the  nation's  burden.^ 

1  On  the  character  of  these  old  demand  notes,  Knox,  71  sqq. 

-  The  government  made  a  great  mistake  in  not,  by  marketing  bonds  at 
any  price,  keeping  our  money  at  the  gold  par.  The  debt  was  nearly  all 
contracted  [bonds  sold]  in  depreciated  dollars,  which  had  to  be  paid 
in  coin  or  its  equivalent.  Besides  this  the  national  banks  [§  141]  should 
have  been  forced  to  buy  ne7o  bonds.  Adams,  Pub.  Debts,  166  sqq.  See 
also  'The  Currency  Debate  of  1873-4,'  N.  A.  Rev.,  Jan.,  1874.  The  green- 
back was  at  one  time,  July  11,  1864,  65  jier  cent  below  gold  par.  When 
the  national  bank  act  was  passetl  in  1863,  $450,000,000  in  greenbacks  were 
already  authorized  and  $300,000,000  out.  Gold  stood  at  $1.70.  In  16 
months  gold  was  $2.80  —  due  in  part,  it  is  true,  to  national  reverses,  not 
wholly  to  greenback  issues.  Specie  payments  were  first  suspended  in  view 
of  war  with  England  over  the  Trent  affair,  just  at  the  end  of  1861.  On 
greenback  prices  of  gold  during  the  war,  see  chart  in  Bowen,  Am.  Pol. 
Kcon.  Best  brief  account  of  government  paper  issues  in  the  war  down  to 
1879,  is  in  Appleton's  Annual  Encyc.  for  1S79,  where  the  pupil  will  also 
find  an  excellent  history  of  the  national  debt  at  large  to  the  same  date. 

§  140     Government  Banking 

Bancroft,  U.  S.,  vol.  vi,  25  sqq.  Atwater,  Princeton  Rev.,  Jan.,  1882.  Sumner.,  An- 
drew Jackson.  Royall,  A.  Jackson  and  the  Bank  of  the  U.  S.  Hildreth,  U.  S., 
vol.  iv,  ch.  ii. 

Of  national  banking  projects  there  have  been  three.^ 
i  The  Bank  of  North  America  began  operations  in 
Philadelphia,  June,  1782,  but  after  a  most  successful 
career  of  two  years  it  changed  its  character  to  that  of 
a  state  bank.  This  was  done  chiefly  because  of  the  in- 
competency of  the  then  Congress  to  create  corpora- 
tions. It  still  exists  in  the  city  of  its  birth,  under  its 
original  name.'^  The  Massachusetts  National  Bank,  in 
lk)ston,  is  of  equal  age.  ii  The  first  United  States 
Itank  went  into  operation  in  1791,  upon  the  plan  of 
Alexander  Hamilton.    The  national  and  state  debts,  the 


PAPER    CURRENCY    IN    THE    UNITED    STATES  211 

latter  having  been  already  assumed  by  Congress,  were 
funded  into  six  per  cent  bonds,  and  three-fourths  of 
every  private  subscription  to  the  stock  of  the  bank 
were  required  to  be  in  these  bonds.  This  raised  na- 
tional credit.  The  bank,  with  its  branches  at  various 
points,  was  also  a  source  of  great  profit  to  stockholders, 
and,  after  twenty  years,  ceased  to  exist  only  because 
denied  a  new  charter  through  the  hostility  of  the 
now  numerous  state  banks. ■'^  iii  The  second  United 
States  Bank  was  chartered  in  1816,  on  the  same  prin- 
ciples as  the  first.  It  was  resorted  to  partly  on  account 
of  the  depreciation  of  national  credit  caused  by  the 
war  of  1 81 2,  partly  by  the  terrible  depreciation  of  state 
bank  bills.  Bad  management  at  first,  coupled  with 
odium  toward  banks  in  consequence  of  the  numerous 
failures  in  18 19,  rendered  the  bank  unpopular.  It  was 
particularly  obnoxious  to  President  Jackson,  who  in 
1832  vetoed  a  bill  for  the  renewal  of  its  charter,  to 
expire  in  1836,  and  in  1833  caused  it  to  relinquish'*  all 
the  government's  deposits,  amounting  to  $10,000,000. 
These  blows  were  fatal  to  the  bank  as  national,  though 
it  secured  a  charter  from  Pennsylvania  in  1836,  and 
existed,  languishing,  till  1839.  After  1836  there  was 
no  national  paper  money  in  circulation  till  the  treasury 
notes  of  December,  1861. 

1  Not  counting  the  national  banks  [§  141],  since  the  banking  done  by 
them  is  not  the  government's  work.     Government  merely  supervises  it. 

2  Now  again  a  national  bank.  It  had  been  under  a  state  charter  ever 
since  Jan.  i,  1774,  and  so  had  the  Mass.  Nat.  Bank. 

^  See  Schouler,  U.  S.,  vol.  ii,  316  sqq. 

*  The  deposits  were  not  removed  all  at  once.  The  new  policy  consisted 
in  depositing  no  more,  and  gradually  checking  out,  as  needed,  what  was 
there.     Sumner's  Jackson  has  an  interesting  account  of  this  controversy. 


212  PAPER    CURRENCY    IN    THE    UNITED    STATES 


§  141     The  National  Bank  System 

Richardson,  The  National  Banks  [Harper's  Half  Ho.  Ser.].  Bolles,  as  at  §  139,  bk.  i, 
ch.  xi,  bk.  ii,  ch.  iv.  McCullochy  Men  and  Measures  of  Half  a  Century,  chaps,  xv, 
xvi,  xvii.  The  National  Bank  Act,  and  otlicr  laws  relating  to  Nat.  Banks  [Gov. 
Printing  Office,  1889]. 

The  present  system  of  National  Banks  liad  origin 
in  1863,  again  in  the  interest  of  the  national  cx- 
cbcquer,  suffering  the  drain  of  war.  It  was  a  plan 
for  raising  money  by  niarketinfjr  jjrovernnient  bonds. 
By  it :  i  Notes  of  private  and  state  banks  are  prohibi- 
tively taxed,  ii  At  least  one-fourth  the  capital  of 
each  bank  must  be  in  United  States  bonds  deposited 
in  Washington.  iii  The  notes  constitute  a  uniform 
currency,  furnished  and  if  necessary  redeemed  by 
government  with  the  bonds  in  its  possession.^  iv  The 
circulation  is  limited  to  ninety  j^er  cent  in  value  of 
the  bonds,  and  to  the  same  proportion  of  the  paid-up 
capital  stock,  whatever  the  size  of  the  bank.  v  Each 
bank  must  keep  a  reserve  of  lawful  money  proportioned 
in  size  to  the  amount  of  its  circulation,  viz.,  twenty  or 
thirty  per  cent^  of  this,  vi  The  notes  are  legal  tender 
from  government  except  for  principal  and  interest  of 
the  public  debt  and  to  government  except  for  customs, 
but  not  between  private  parties. 

1  So  that  should  a  bank  fail  its  notes  would  slill  l)c  good.  Notes  thus 
often  circulate  some  time  after  the  banks  issuing  them  have  suspended. 
The  U.  S.  treasury  does  not  in  such  a  case  surrender  to  the  creditors  of 
the  bank  the  last  of  its  bonds  till  all  the  notes  are  redeemed. 

2  In  the  reserve  cities,  viz.,  those  in  whose  banks  the  banks  of  smaller 
places  may  deposit,  it  is  30  per  cent,  elsewhere  20  per  cent.  In  all  cases 
5  per  cent  of  the  outstanding  circulation  has  to  lie  in  the  treasury  at  Wash- 
ington for  the  redemption  of  notes  there.     This  is  part  of  the  reserve. 


CHAPTER    III 

our  paper  currency  in  future 

§  142     Pkksknt  System 

McCulloch,  'Our  Future  Fiscal  Policy,"  N.  A.  Rev.,  June,  1881.  Allison,  ibid.,  June, 
1882.  Scott  et  al.,  ibid.,  Sept.,  1885.  Ativater,  '  The  Put.  Paper  Mo.  of  this  Coun- 
try,' Princeton  Rev.,  Jan.,  1882.  Neill,  '  Legal  Tender  Question,"  Pol.  Sci.  Quar., 
June,  18S6. 

The  theoretical  faults  of  the  national  bank,  (i)  its 
basis,  credit  ^  instead  of  cash,  (ii)  temptation  to  over- 
issue,2  (iii)  double  iiiterest,^  (iv)  admission  of  balances 
and  of  clearing-house  and  United  States  deposit  certifi- 
cates* as  part  of  the  'lawful  money'  reserve,  have  not 
wrought  sensible  mischief  in  practice.  On  the  other 
hand,  (i)  the  unchallenged  currency  of  the  bills  all  over 
the  land,  (ii)  their  steadfastness  at  gold  par,  (iii)  the 
difficulty  of  counterfeiting"  them,  and  (iv)  the  infallible 
certainty  of  their  redemption,^  have  inspired  a  very 
general  wish  to  perpetuate  the  system. 

1  Viz.,  in  the  form  of  bonds.  See  §  141,  ii.  In  the  panic  of  May,  1884, 
all  sorts  of  government  bonds  fell  several  per  cent,  materially  altering  the 
status  of  banks.  But  recovery  was  very  speedy.  Any  political  event 
abroad  which  sends  home  our  foreign-held  bonds  has  the  same  effect. 

-  No  single  bank  can  issue  more  than  its  share,  but  there  is  no  legal 
limit  to  the  number  of  banks  in  the  country.  The  danger  here  signalized 
must  be  slight  so  long  as  the  government  maintains  specie  payments,  since, 
if  too  many  national  bank  notes  are  at  any  time  in  circulation,  they  can  be 
presented  for  redemption,  and  if  this  takes  place  in  greenbacks  [one  form 
of  'legal  money']  instead  of  gold,  these,  too,  may  be  turned  into  gold. 
Whether  or  not  under  these  circumstances  there  can  be  inflation  is  the 
same  question  we  touched  at  §  91  and  notes. 

^  The   bank   draws  interest  on  all  the  bonds  constituting  its  capital 


214        OUR  PAPER  CURRENCY  IN  FUTURE 

[§  141,  ii],  and  at  the  same  time  uses  its  notes  in  discounting.  This  was 
at  first  a  source  of  exorbitant  profits,  l)ut  for  many  years  has  not  l)een  so, 
as  shown  l)y  the  widespread  liisposition  of  banks  to  surrender  their  bonds 
for  cash  to  use  in  discounting,  this  assuring  them  greater  gains  than  tiie 
bonds  yield. 

■•  Balances  tlue  from  other  banks,  and  the  gold  certificates  mentioned  at 
§  86,  n.  I. 

5  See  §  141,  iii. 

§  143     Difficulties 

Reports  of  the  Secretary  of  the  Treasury,  December,  1888  and  1889. 

Growth  of  national  credit  having  advanced  the  value 
of  long  bonds  and  made  possible  the  refunding'  of  the 
others  at  a  low  rate,  banks  begin  to  prefer  relinquish- 
ment of  circulation  to  the  interest  of  the  bonds  needed 
to  retain  it.  Several  measures  have  been  propounded 
for  the  prevention  of  contraction  from  this  source, 
and  for  the  maintenance  of  the  national  bank  circu- 
lation till  the  entire  debt  shall  have  been  cancelled. 
Of  these  the  following  most  deserve  mention :  (i)  to 
remove  the  ninety  per  cent  limit ^  on  circulation,  fixing 
this  at  the  par  or  perhaps  at  the  market  value  of  the 
bonds  deposited,  (ii)  to  refund  ^  the  fours  and  four  and 
a  halfs  into  two  and  a  halfs  with  an  equal  time  to  run, 
recouping  holders  by  the  present  worth  in  cash  of  the 
interest  given  up,  (iii)  to  repeal  the  one-half  of  a  per 
cent  tax  on  circulation,  (iv)  to  transform  the  entire 
annuities  now  attaching  to  the  fours  and  four  and  a 
halfs  into  separate  bonds,  in  accordance  with  their 
present  worth,  then  to  unite  these  with  the  present 
fours  and  four  and  a  halfs  and  issue  new  bonds  to 
cancel  both  :  the  latter  to  be  paid  in  .series  year  by 
year,  thus  affording  an  outlet  for  the  accumulating 
surplus.'^ 


OUR    PAPER    CURRENCY    IN    FUTURE  215 

1  The  McPhcTsoii  hill,  passed  by  the  Senate  Feb.  28,  1884,  killed  in  the 
House  Jan.  15,  1885. 

'  The  Aldrich  bill,  brought  before  the  Senate  of  both  the  XLVIII  and 
the  XLIX  Congress,  but  never  passed.  The  Potter  bill,  contemporane- 
ously moved  in  the  House,  proposed  to  exchange  the  3's  [now  paid  off] 
as  well. 

3  Plan  set  forth  by  H.  C.  Adams,  in  the  Forum  for  Dec,  1887.  Its  very 
great  advantage  over  the  others  lies  in  the  steadiness  and  regularity  with 
which  it  would  utilize  the  government's  needless  revenue  for  the  lessening 
of  the  debt. 

§  144     Proposed  Change  of  Basis 

Report  of  Secretary  of  the  Treasury,  December,  1886. 

The  last  of  our  national  bonds,  the  fours,  being  call- 
able on  July  I,  1907,  and  the  bulk  of  the  others,  viz., 
the  four  and  a  halfs,  on  September  i,  1891,  and  it  being 
unlikely  that  the  debt  will  be  kept  in  existence  merely 
to  furnish  basis  for  banks,  none  of  the  above  schemes 
offer  other  than  temporary  relief.  Various  suggestions 
are  therefore  made  of  possible  substitutes  for  national 
bonds  as  security  to  bank  circulation  :  consols,  rentes 
or  other  foreign  public  paper,^  state,  county  or  city 
bonds,  bottom  mortgages  on  real  estate,  etc.  None  of 
these  could  fully  replace  the  present  security.  The 
best  plan  '^  yet  propounded  would  (i)  restrict  the  circu- 
lation of  each  bank  to  ninety  per  cent  of  its  stock, 
(ii)  make  bills  a  first  lien  on  all  the  assets  of  their 
banks  and  also  on  other,  property  of  stockholders  to 
the  value  of  100  per  cent  of  each  one's  stock,  (iii)  force 
each  bank  to  keep  with  the  United  States  Treasurer  a 
coin  reserve  equal  to  10  per  cent  of  its  circulation, 
(iv)  force  the  united  banks  to  j?uarantee  each  individual 
bank,  and  so  (v)  have  bills  of  broken  banks  infaUibly 
retleemable  at  Washington,  as  now. 


2l6  OUR    TATER    IIRRENCY    I\    FUTURE 

'  Mr.  Jolin  Jay  Knox,  furnierly  toniplroller  of  the  Currency,  at  i>;ic  time 
favored  the  acceptance  of  foreign  securities  for  this  office. 

*  Drawn  up  Iw  Hon.  A.  S.  Hewitt.  The  essence  of  it  was  adopted  by 
President  John  Thompson  of  the  Chase  Nat.  Dank,  X.  V.  City,  in  his  cir- 
cular of  Jan.,  18S5,  intended  to  influence  public  opinion  and  so  Congress. 


§  145     Probable  Outcome 

Adams,  Pub.  Debts,  pt.  ii,  ch.  ii.     Sylvester,  as  at  §  136. 

This  plan  is  inj^enious,  but  has  the  defects  of  intri- 
cacy and  of  giving  government  too  little  real  control 
over  bank  assets  to  assure  redemption  in  all  cases. 
Preferable  to  it,  people  more  and  more  believe,  would 
be  some  scheme  for  the  issue  of  notes  directly  by 
pTovernment  as  greenbacks  are  issued  now,  only  mod- 
elled more  after  the  issue-department  of  the  Bank  of 
England.^  The  great  merits  of  such  an  arrangement 
would  be  eflficiency,  simplicity,  and  profitableness  to 
government  both  ncgati\'.' -  and  positive.  Objections: 
It  would  be  unconstitutional.  But  the  Supreme  Court 
has  decided  otherwise.'^  Inelastic.  Somewhat,  but 
could  easily  be  made  less  so  than  our  present  paper 
system.  Facile  means  to  inflation.  It  could  add  noth- 
ing to  the  power  or  to  the  inducement  which  Congress 
had  to  create  the  present  treasury  notes.  Such  a  paper 
circulation  could  readily  be  made  tributary  to  a  plan 
for  ideal   moncy.^ 

1  Without,  of  course,  the  inelasticity  of  the  Bank  of  Kiigland  issues. 
There  we  find,  (i)  the  circulation  restricted  to  15  milliun  jwunds  above 
specie  in  vaults,  otherwise  free,  (ii)  every  bill  legal  tender  save  from  the 
bank  itself,  and  instantly  convertible.  It  would  be  advisable  to  have  no 
absolute  maximum  or  minimum  of  circulation.  The  business  should  be 
regulated  by  an  able  and  impartial  commission,  a  majority  of  them  not 
liankers,  empowered  to  suit  the  volume  of  notes  to  the  needs  of  the  country 


OUR  PAPER  CURRENCY  IN  FUTURE        2iy 

according  to  the  principle  of  §  87.  This  idea  is  as  old  as  Ricardo  [Pro- 
posals for  a  Secure  Currency],  who  moved  to  vest  the  power  of  issuing 
paper  money  in  commissioners  appointed  by  the  ministry  but  removable 
only  on  address  by  one  or  both  houses  of  Parliament. 

-  The  negative  advantage  would  consist  in  relief  from  the  expense  and 
risk  of  supervising  the  present  complicated  system.  For  the  positive,  see 
§  78  and  n.  i,  §  86  and  notes. 

'  Virtually,  in  JuUiard  ts.  Greenman.  See  Knox,  U.  S.  Notes,  chaps, 
iii,  iv,  xi;  James,  in  I'ubb.  of  Am.  Kc.  Ass'n,  vol.  iii,  49  sqq.;  BoUes,  as  at 
§  139,  bk.  ii,  ch.  i;  McCuUoch,  as  at  §  141,  ch.  xv.  This  case  to  be  sure 
related  directly  to  the  legal  tender  (juality  of  notes  redeemed  and  paid 
out  again  under  the  act  of  1878.  It  pronounced  that  act  constitutional. 
More  certainly  so  would  be  the  notes  we  pr<i]i.)se,  which  ot/^/i(  not  to  be 
legal  tender  at  all.  It  is  the  non-observance  of  this  which  creates  so  much 
prejudice  against  government  paper  money.  People  mistakenly  conceive 
such  paper  as  necessarily  a  forced  loan.  That  Mr.  Goschen,  Chancellor 
of  the  Eng.  Exchequer,  intends  an  issue  of  English  greenbacks,  may  perhaps 
be  taken  as  some  proof  of  the  innocuousness  of  such  money.  See  Budget 
Speech,  Lond.  Times,  Ap.  19,  1889.  Observe  in  particular  that  we  advo- 
cate on\y  promissory,  not  fiat  greenbacks  [§  93].  We  need  not  remark 
that  the  execution  of  the  aliove  proposal  would  in  no  wise  interfere  with 
the  regular  and  most  profitable  business  of  banks,  viz.,  that  of  discounting. 


CHAPTER    IV 

taxation 

§  146     General  Principles 

Ad.  Smith,  bk.  v.  Leroy-Pcaulieu,  Tlu'o.  des  Finaucesy  bk.  ii.  Schoeiiberg,  Hand- 
buck  der  FoL  0<A-.,  vol.  ill.  Cossu,  Taxation.  CovUy,  Law  of  Taxation.  Mill, 
bk.  V,  ch.  ii.     NicltoUon,  '  Taxation,'  in  Encyc.  Brit. 

i  Taxation,  as  topic  in  Economics,  relates  partly  to 
Distribution,  j^artly  to  Consuinption,  to  neither  exclu- 
sively.' ii  ihc  generic  principle  to  be  followed  in 
taxation  is  :  sufficiency  of  revenue  in  highest  possible 
consonance  with  the  jfcneral  good.  Subordinate  ab- 
stract principles  of  so-called  riL;"ht,  as  mortmain,  cus- 
tomary privilege,  etc.,  are  hence  to  be  respected  ^  only 
within  the  above  limit.  Also,  while  the  equalization 
of  wealth  is  no  part  of  the  purpose  of  taxation,  inci- 
dental tendency  to  this  in  any  plan  of  taxation  should, 
ceteris  paribus,  give  it  preference  over  competing  plans, 
iii  Taxes  should  be,  so  far  as  is  possible  and  consistent 
with  their  main  aim,  (i)  definite  in  amount  and  as  to 
time  and  manner  of  payment,  (ii)  levied  and  collected  in 
the  way  most  convenient  to  payers,  (iii)  made  to  take 
from  the  payer  as  little  as  possible  beyond  Avbat 
reaches  the  treasury,  (iv)  arranged  to  encourage,  not 
discourage,  industry,  inventiveness,  intelligence,  taste, 
and  whatever  ennobles  national  life.^ 

*  The  civil,  military,  and  naval  personnel  is  made  up,  theoretically  and 
lar((cly  in  fact,  of  producers,  who  receive  [gross]  wages.  Taxation  to  meet 
this  outgo  comes  under  Distribution.     But  all  waste  through  governmental 


TAXATION  219 

act,  as  well  as  all  outlays  on  behalf  of  art  and  science,  are  referrible  to 
Consumption. 

-  By  legislators,  that  is.  Assessors  and  collectors  must  of  course  proceed 
according  to  the  laws,  whatever  they  are. 

'  These  are  in  substance  the  ruK s  which  have  come  down  from  Adam 
Smith,  book  v,  ch.  ii,  pt.  ii.  -epnuhiced  by  all  subsequent  writers  upon 
finance,  (f.  Walker,  in  P.  E.,  ch.  on  Taxation,  for  one  or  two  excellent 
modilications. 


§  147     Direct  and  Indirect  Taxes 

Mill,  bk.  V,  chaps,  iii-vi.    Ccssa,  Taxation,  pt.  iii.    James,  '  Customs  Duties,'  in  Lalor. 

Taxes  are  direct  or  indirect  according  as  they  are 
assessed  upon  the  very  parties  from  whom  they  purport 
to  be  collected,  or  upon  other  parties,  as  manufactur- 
ers, importers,  etc.,  who  indt'innify  themselves  out  of 
the  consumers  by  adding  taxes  to  prices.  Indirect 
taxes,  viz.,  customs  and  excises,  are  in  favor  because, 
being  identified  in  the  minds  of  consumers  with  the 
prices  of  commodities,^  they  are  easy  to  collect.  They 
are  objectionable  as  unduly  burdensome  to  the  poor,'-^ 
particularly  if  specific  instead  of  ad  valorem,  since 
they  are  rated  rather  according  to  population  than  ac- 
cording to  property.  If  laid,  they  should  bear  lightly 
on  necessaries,  moderately  on  comforts,  more  heavily 
on  luxuries. 

1  People  pay,  falsely  thinking  them  to  be  part  of  the  cost-and-handling 
prices  of  the  articles  bought,  not  surmising  that  they  are  settling  their  ta.>c- 
accounts  with  the  nation. 

2  To  yield  much  revenue  they  must  be  placed  on  goods  that  are  some- 
what popularly  consumed.  Specific  duties  aggravate  the  evil  because, 
being  ti.xed  at  about  so  much  on  the  value  of  the  medium  ciuality  of  the 
article,  they  are  of  course  unduly  high  on  the  poorer  qualities,  which  alone 
poor  people  can  buy. 


220  taxation 

§  148     Norms  of  Direct  Taxation 

Urt/zt^r,  '  Principles  of  Taxation,' Princeton  Rev..  July,  1880.  //.  George,  Prog,  and 
Poverty,  bks.  vii  sqq.  Ely,  Taxation  in  Am.  States  and  Cities.  '  Taxation  in  U.  S.' 
[4  artt.],  New  Englandcr,  1884.    Ford,  '  Reform  in  Taxation,'  Int'l  Rev.,  vol.  xiii. 

Five  specilic  principles  easily  suggest  themselves  as 
possible  bases  for  direct  taxation,  (i)  property  in  general, 
(ii)  expenditure,  (iii)  productive  ability,  (iv)  income, 
(v)  non-capital  projierty.  Taxation  upon  any  of  the 
first  four  is  cither  unjust,  or  impracticable,  or  both.^ 
The  main  category  of  non-capital  property  is  land 
proper,  viz.,  land  aside  from  improvements  —  an  emi- 
nently fit  bearer  of  heavy  taxation. ^  However,  (i)  to 
keep  taxation  perceptible  by  the  people,^  (ii)  to  avoid 
the  inevitable  injustice  of  any  single  tax,*  (iii)  to  com- 
pass the  requisite  elasticity  of  revenue,^  and  (iv)  to 
insure  disciplinary  power  over  refractory  or  extortion- 
ate businesses,  other  taxes  besides  a  tax  on  land  are 
needed  :  customs  duties,  excises,  and  taxes  on  general 
income. 

1  Not  to  mention  the  injustice  in  principle  of  a  general  property  tax, 
which  would  in  effect  involve  a  penalty  on  thrift,  such  a  tax  absolutely 
cannot  be  equitably  assessed  or  collected,  such  is  the  proportion  of  per- 
sonal property  which  can  easily  be,  and  will  be,  concealed.  See  Ely,  as 
above,  also  in  Rep.  of  the  Md.  Tax  Commission,  1887.  See,  too,  the  1872 
Rep.  of  the  N.  V.  State  Tax  Commissioners.  The  exact  expenditure  of  fami- 
lies is  rarely  known  even  to  themselves.  A  tax  on  productive  ability,  «ere 
it  only  feasible,  would  certainly  involve  much  justice.  But  suppose,  as  is 
too  often  the  case,  the  ability  has  been  unused?  Much  is  to  be  said  for  an 
income  tax,  and  it  is  the  favorite  of  all  the  great  writers  on  finance,  some 
of  whom  advocate  it  to  the  exclusion  of  every  other  form.  15ut  experience 
in  Gt.  Britain  shows  that  even  this  tax  cannot  be  fairly  collected,  so  easy 
is  the  falsification  of  income  returns. 

2  T<j  this  extent  H.  Ceorge  is  clearly  right.  Land  cannot  lie  hiddeu. 
while  its  true  value  can  in  most  cases  be  determined  with  relative  ease. 
Moreover,  all  people  arc  dependent  directly  or  indirectly  u])on  the  land. 


TAXATION  221 

and  hence  must,  through  tlie  principle  of  'repercussion'  [Cossa,  Taxation, 
62],  help  pay  jiart  of  a  land  tax  whether  themselves  land-owners  or  not. 
A  good  deal  of  this  equity  obviously  attaches  to  a  real  estate  tax,  which 
would  Ije  an  intinite  inii)rovenient  over  the  general  property  tax  now  sought 
to  be  carried  out  in  most  of  our  states. 

3  That  popular  institutions  may  prevail  government  must  be  forced  to 
solicit  the  people  for  funds,  which  would  not  be  necessary  so  long  as  taxes 
were  funiishcil  in  plenty  by  economic  rent,  as  H.  George  and  the  single 
land  tax  theorists  propose.  This  principle,  ably  discussed  by  Atlams,  Pub. 
Debts,  22  sqq.,  we  have  not  seen  appealed  to  in  the  land  tax  controversy, 

*  No  particular  tax  can  possibly  be  levied  save  with  injustice  here  and 
there,  weighting  this  man  too  heavily,  the  next  too  lightly.  A  single-tax 
system  exaggerates  every  such  unfairness  to  the  utmost,  while  by  burdening 
many  things  you  tend  to  offset  losses  by  gains. 

*  Any  tax  can  on  occasion  be  reduced,  but  few  are  the  sorts  of  taxes 
which  can  be  at  once  suddenly  and  safely  elevated,  producing  no  shock. 
Liquor  taxes  well  answer  this  reciuiremcnt.  So  do  income  taxes,  which 
Gt.  Britain  has  usually  resorted  to  in  such  emergencies.  Not,  however,  in 
the  most  recent  case,  Mr.  Goschen's  budget  of  April,  1889,  introducing 
instead  a  death  tax  on  estates  of  over  /'io,ooo. 

§  149     Taxation  of  Income 

CoAh,  '  Income  and  Property  Taxes,"  Pol.  Sci.  Quar.,  vol.  iv.    Mi7l,  bk.  v,  ch.  ii,  sees.  3,  4. 

The  following-  rules  ^  should  govern  the  incidence  of 
an  income  ta.x  :  i  Up  to  a  given  amount,  income  should 
not  be  taxed  at  all.  ii  The  percentage  should  slowly 
increase  according  to  the  amount  of  income,  iii  In- 
come from  capital  should  pay  a  greater  percentage 
than  salaries  or  wages.  iv  Income  arising  without 
labor  and  risk  should  pay  a  greater  percentage  than 
other.  Thus,  all  considerable  legacies,  except  to  near- 
est relatives,  should  be  well  taxed,  the  rate  increasing 
with  prospect  of  their  unproductiveness. 

1  Involving  the  so-called  'progressive'  [or  'degressive']  principle  of 
income  taxation.  Fawcett  in  his  Manual  opposes  this,  but  on  insufficient 
grounds- 


222  taxation 

§  150  Emergency  Taxation 

Mill,  bk.  i,  ch.  V,  sees.  8,  10.     Adams,  Pub.  Debts,  pt.  i,  ch.  v;  pt.  ii,  ch.  i. 

Extraordinary  public  expenditure  should,  unless  very 
great,  usually  be  covered  by  immediate  extra  taxation 
instead  of  by  loans,  as  slight  extra  taxes  will  be  to  a 
great  extent  paid  out  of  non-capital  wealth,  not  ab- 
stracting from  the  support  of  labor,  while  loans  com- 
monly prey  upon  capital.  But  if  the  projected  outgo 
is  vast,  resort  may  well  be  had  to  a  loan,  more  particu- 
larly if  this  promises  to  be  largely  taken  up  abroad.^ 

^  This  is  nut  the  place  for  full  discussion.  Read  Adams,  as  above,  or 
the  proper  chapters  in  any  of  the  regular  works  on  Public  Finance. 


CHAPTER   V 

POVERTY 

§  151      The  First  Class  of  Remedies 

Davis,  '  Labour  and  Labour  Laws,"  in  Encyc.  Brit.  //.  George,  Prog,  and  Poverty; 
Social  Problems.  Cherbuliez,  pt.  ii,  bk.  iii.  Mill,  bk.  iv,  ch.  vli.  H.  Spencer, 
Man  vs.  the  State.  Sumner,  What  Social  Classes  Owe  Each  Other.  Rae,  Con- 
temp.  Socialism,  last  2  chaps.  'Charity'  [several  arti.J,  in  Lalor.  Graham,  The 
Social  Problem.     IVarner,  Pop.  Sci.  Mo.,  July,  1889. 

Of  the  remedies  popularly  suggested  for  poverty, 
some  are  expected  to  raise  wages,  others  to  operate 
directly.  The  latter  are  poor  laws  and  private  charity. 
Experience,  especially  in  England,  has  proved  the  abso- 
lute necessity,  both  economic  and  moral,  of  refusing 
charitable  aid  except  to  prevent  actual  and  decided 
want.  To  make  sturdy  paupers  comfortable  is  to 
put  a  premium  on  indolence,  a  penalty  on  industry.^ 
The  work  of  organized  charity,  on  the  other  hand, 
hunting  out  and  shaming  or  punishing  impostors,  find- 
ing—  not  making — work  for  the  healthy  vvorkless,  and 
prudently  aiding  those  truly  needy,  is  in  the  highest 
degree  advantageous  both  economically  and  morally. 

^  See  §  16,  n.  6.  II.  Spencer  [also  Sumner],  as  above,  vividly  shows 
the  inexpressii)ly  baneful  results  of  coddling  worthless  human  beings  so  as 
to  enable  them  to  propagate  their  kind.  But  society  has  a  duty  to  such. 
It  should,  if  possil)lc,  reform  them  both  economically  and  morally.  Peek, 
in  Contemp.  Rev.,  Jan.  and  Feb.,  1888,  and  Manning,  ib.,  Mch.  The 
Charity  Organization  Societies  in  several  of  our  largest  cities  are  doing 
excellent  work  toward  this  end.  On  this  interesting  subject,  Warner,  as 
abi)ve,  writes  well. 


224  POVERTY 

§  152     The  Second  Class 

mil,  bk.  ii,  chaps,  xii,  xiii:  '  Claims  of  Labour*  [in  Dissertations].  Lcroy-Beaulieu, 
Question  ouvriire  au  jcijciemt  Steele.  Ely,  Labor  Movement  in  America.  Mc- 
.Veill,  et  al..  The  Labor  Movement.     GttntoK,  Wealth  and  Progress. 

Here  come  the  measures  intended  to  raise  wages : 
(i)  strikes,  (ii)  tratles-iinious,  (iii)  legfi.slative  enact- 
ments upon  wai^e-rates  or  hours  of  labor,  (iv)  demand 
that  wages  be  paid  when  business  can  go  on  only  with 
loss,  (v)  demand  that  idle  wealth  be  turned  into  capital. 
Strikes  and  trades-unions  are  per  se  both  legitimate 
and  often  useful,  but  call  for  the  utmost  discretion  and 
self-control  in  management,  i  Strikes,  unless  general, 
fail,  usually  fail  if  general  unless  on  a  rising  market,^ 
and  at  any  rate  when  not  successful,  possibly  even  then, 
limit  production-  and  so  wages,  ii  Trades-unions,  so 
far  as  they  endeavor  to  control  wage-rates  simply  by 
limiting  the  supply  of  labor,  hinder  general  prosperity, 
and  hence  general  wages,^  in  the  same  way  as  most  re- 
strictive tariffs  do.  iii  The  legislation  referred  to,  im- 
portant and  desirable  as  it  often  is,  may  easily  be  so 
framed  as  to  prove  either  futile  or  mischievous  like 
the  above,  iv  Paying  wages  at  a  loss  is  charity,  also 
the  destruction  of  capital,  putting  farther  off  the  day 
when  wages  proper  can  be  paid.  But  firm,  temperate 
and  wise  labor  agitation,  with  or  without  these  particu- 
lar means,  may  do  much  to  better  wages,  in  the  way 
pointed  out  at  §  118. 

^  In  March,  iSSS,  during  the  greatest  snow  blockade  ever  known  in 
N.  E.,  when  I2  locomotives  were  stalled  in  New  Haven  and  no  trains  passed 
between  that  city  and  X.  V.  for  3  da>-s,  200  shovellers  employed  by  the  X.  ^'.. 
N.  H.  &  H.  R.  R.  at  Meriden  struck  for  an  advance  of  from  21  \  to  50  cent> 
pay  an  hour.     It  is  needless  to  say  that  they  were  retained.     How  modern 


POVERTY  225 

systems  of  industry  favor  the  success  of  strikes,  slc  §  45.  To  IIil-  eonsidera- 
tioiis  there  menlioneil  we  may  add  this  tliat  nearly  all  manufacturers  now 
work  on  orders,  which  they  are  under  contract  to  fill  at  such  and  such 
times.  A  greater  proportion  of  strikes  [38  per  cent]  and  strikers  [50  per 
cent]  succeeded  in  18.SS  tlian  in  any  preceding  year  [Bradstreet's,  Feb.  2, 
1889],  due,  however,  in  large  measure  to  greater  moderation  in  striking, 
and  the  consequent  greater  justice  of  demands.  From  1881  to  1886,  inclu- 
sive, strikes  occurreil  in  22,304  establisliments  in  the  U.  S.,  and  1,323,203 
employees  were  engaged  in  them.  At  the  same  time  160,823  employees 
were  locked  out.  Of  all  these  strikes  9,439,  or  42  per  cent,  were  for 
increase  of  wages,  4,344,  or  19.48,  for  reduction  of  hours,  1,734,  or  7.77  per 
cent,  against  reduction  of  wages,  1,692,  ov  7.59  per  cent,  for  increase  of 
wages  and  reduction  of  hours.  Wages  or  hours  had  most  to  do  with  more 
than  77  per  cent  of  the  strikes,  and  nearly  4  per  cent  more  were  influenced 
by  the  same  causes  coupled  with  others.  Of  the  strikes  for  higher  wages 
66  per  cent  were  successful  and  8.43  per  cent  were  partly  successful.  Of 
the  strikes  to  secure  a  reduction  of  the  hours  of  labor  about  47  per  cent 
were  entirely  or  partly  successful.  On  the  responsibility  of  both  employers 
and  employees  to  the  pul:)lic,  Carl  Schurz,  in  N.  A.  Rev.,  Jan.  and  Feb.,  1884. 
\Vhy  laborers  cannot  compete  with  landowners  in  a  strike.  Prog,  and  Pov- 
erty, 282  S(jq. 

2  The  aggregate  losses  caused  by  the  stoppage  of  work  during  the  three 
weeks  of  struggle  in  the  southwestern  strike  of  1866,  were  placed  at  S30,- 
300,000  :  ^3,000,000  in  wages  which  250,000  strikers  threw  away,  $2,500,- 
000  sacrificed  through  interruption  to  the  business  of  employers,  $4,400,000 
lost  in  deferred  industrial  contracts,  and  $20,400,000  in  building  contracts. 

^  Advantaging  their  members  at  the  expense  of  the  laboring  population 
in  general. 

§  153     Ultimate  Help 

Patten,  The  Consumption  of  Wealth  [see,  .ibove,  §  124].    Bilgram,  Iron  Law  of  Wages. 
Fawcett,  Manual  of  P.  E. 

The  capitalizingr  of  idle  wealth  ^  promises  much,  and 
would  promise  far  more  but  for  a  sadly  convincins:  induc- 
tion which  teaches  that  when  material  betterment  does 
chance  to  come  to  the  igrnorant  poor,  as  through  a  rise 
of  wages  or  the  cheapening  of  bread,  it  is  instantly 
checked  by  increased  population.    However  great  rela- 


226  POVERTY 

tive  relief-  may  be  hoped  from  the  measures  named 
above,  or  from  co-operation'^  in  its  various  fo'.ins,  private 
and  public,  and  zealously  as  all  should  strive  to  multiply 
and  promote  such  helps,  the  economic  elsvution  of  the 
poor  will  prove  to  be  ultimately  an  ethical  and  an 
educational  work.*  Their  great  wants  are,  (i)  a  moral 
one,  the  will  to  restrict  population  where  necessary,-^ 
check  vicious  appetites,  and  act  uiiitedly,^  (ii)  an  intel- 
lectual one,  knowledge  of  economic  and  social  laws, 
that  they  may  assert  claims  wisely.  Aids  to  these, 
the  only  final  relief  of  indigence,  are,  (i)  the  Chris- 
tian rolif^ion,  which,  rightly  understood,  includes  all 
true  morality,  (ii)  sympathizing  public  opinion,  and 
(iii)  compulsory  education.  This  last  is  equally  called 
for  by  the  logic  of  free  schools. 

iSee§  131. 

-a.  §  118,  n.  4. 

8  On  co-operation,  Somers,  'Co-operation,'  in  Encyc.  Brit.;  Block,  do. 
in  Lalor;  Holvoake,  H.  of  Co-op.  in  Eng.;  Marshall,  Ec.  of  Ind.,  bk.  iii, 
ch.  ix;  Giddings,  in  McNeill's 'Labor  Muvenient';  P'awcett,  Man.,  bk.  ii, 
ch.  x;  Cairnes,  Leading  Prin.,  289  sqq.;  Co-op.  in  U.  S.,  Johns  Hop.  Univ. 
Stud.,  Vlth  ser.  Very  much  more  has  been  written.  A  great  deal  may  be 
expected  from  the  co-operative  movement,  though  probably  less  than  many 
think  [§  123,  end].  Profit  sharing  is  the  most  promising  phase  of  co-op- 
eration [best  treated  in  Oilman,  Profit  Sharing  l)etween  Employer  and 
Employe;  cf.  Quar.  Jour.  Econ.,  vol.  i,  232,  367]  except  perhaps  co-opera- 
tive banking  and  [virtually  the  same  thing]  co-operation  in  building  and 
loaning  [Dexter,  Co-operative  Building  and  Loan  Associations].  On  the 
excellent  working  of  the  various  sorts  of  [-"riendly  .Societies,  as  the  Odd 
Fellows,  etc.,  a  sort  of  co-operation,  see  Quarterly  Rev.,  April,  1888. 

*  The  more  necessary  to  emphasize  this  because  the  fact  is  so  commonly 
ignored  in  favor  of  nostrums  or  at  best  partial  measures.  Indefinite  credit 
utilized  as  money  is  Hugo  Bilgram's  remedy  [§  92,  n.  i]. 

*  The  general  question  of  Malthusianism  ['  Population,'  in  Lalor]  wc  do 
not  here  touch.     All  ajjart  from  this,  it  is  perfectly  obvious  that  very  many 


POVERTY  227 

families  would  he  in  every  way  better  off  with  fewer  members.  For  the 
intclli};cnt  atul  wc-ll-to-do  not  to  he  celibates  is,  even  by  the  principles  of 
Malthus,  a  duty. 

8  How  many  strikes  and  promising  labor  movements  fail  through  selfish 
ambition  and  treachery !  While  lliese  prevail  the  employer  will  have 
lai)orers  at  his  mercy. 


UNIVHRSITV  OF  CALIFORNIA.  LOS   ANGELES 

THE  UNIVERSITY  LIBRARY 

This  book  is  DUE  on  the  last  date  stamped  below 


HOY  2  7 1962 


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Km-W/4»(JIM) 


AT 

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TJRRAnV 


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171,5  ;mdre-ws  - 
^-A566i—  Institutes  of- 
1888   economics. 


iyyif'  ..  p»  ■  - 


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171.5 
A566i 
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